UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2017March 31, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from to
Commission File Number 1-34403001-34403
TERRITORIAL BANCORP INC.
(Exact Name of Registrant as Specified in Charter)
Maryland | | 26-4674701 |
(State or Other Jurisdiction of Incorporation) | | (I.R.S. Employer Identification No.) |
| | 96813 |
(Address of Principal Executive Offices) | | (Zip Code) |
(808) (808) 946-1400
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and formal fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading symbol | Name of each exchange on which registered |
Common stock | TBNK | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | | Accelerated filer |
Non-accelerated filer | |
|
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.☒.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 9,880,5018,832,235 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of October 31, 2017.April 30, 2024.
TERRITORIAL BANCORP INC.
Form 10-Q Quarterly Report
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1 | |||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 28 | ||
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39 | |||
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42 |
PART I
ITEM 1. FINANCIAL STATEMENTSSTATEMENTS
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except share data)
|
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|
|
|
|
|
|
|
| September 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 38,385 |
| $ | 61,273 |
|
Investment securities available for sale |
|
| 2,910 |
|
| — |
|
Investment securities held to maturity, at amortized cost (fair value of $415,112 and $407,922 at September 30, 2017 and December 31, 2016, respectively) |
|
| 411,657 |
|
| 407,656 |
|
Loans held for sale |
|
| 495 |
|
| 1,601 |
|
Loans receivable, net |
|
| 1,434,753 |
|
| 1,335,987 |
|
Federal Home Loan Bank stock, at cost |
|
| 5,013 |
|
| 4,945 |
|
Federal Reserve Bank stock, at cost |
|
| 3,103 |
|
| 3,095 |
|
Accrued interest receivable |
|
| 4,985 |
|
| 4,732 |
|
Premises and equipment, net |
|
| 5,658 |
|
| 4,327 |
|
Bank-owned life insurance |
|
| 43,976 |
|
| 43,294 |
|
Deferred income tax assets, net |
|
| 7,172 |
|
| 7,905 |
|
Prepaid expenses and other assets |
|
| 4,350 |
|
| 2,747 |
|
Total assets |
| $ | 1,962,457 |
| $ | 1,877,562 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Deposits |
| $ | 1,571,367 |
| $ | 1,493,200 |
|
Advances from the Federal Home Loan Bank |
|
| 69,000 |
|
| 69,000 |
|
Securities sold under agreements to repurchase |
|
| 55,000 |
|
| 55,000 |
|
Accounts payable and accrued expenses |
|
| 24,341 |
|
| 23,258 |
|
Income taxes payable |
|
| 1,693 |
|
| 1,616 |
|
Advance payments by borrowers for taxes and insurance |
|
| 3,764 |
|
| 5,702 |
|
Total liabilities |
|
| 1,725,165 |
|
| 1,647,776 |
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized 50,000,000 shares, no shares issued or outstanding |
|
| — |
|
| — |
|
Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 9,855,555 and 9,778,974 shares at September 30, 2017 and December 31, 2016, respectively |
|
| 99 |
|
| 98 |
|
Additional paid-in capital |
|
| 72,729 |
|
| 71,914 |
|
Unearned ESOP shares |
|
| (5,505) |
|
| (5,872) |
|
Retained earnings |
|
| 175,286 |
|
| 168,962 |
|
Accumulated other comprehensive loss |
|
| (5,317) |
|
| (5,316) |
|
Total stockholders’ equity |
|
| 237,292 |
|
| 229,786 |
|
Total liabilities and stockholders’ equity |
| $ | 1,962,457 |
| $ | 1,877,562 |
|
| | | | | | | |
|
| March 31, |
| December 31, |
| ||
|
| 2024 |
| 2023 |
| ||
ASSETS | | | | | | | |
Cash and cash equivalents | | $ | 90,059 | | $ | 126,659 | |
Investment securities available for sale, at fair value | | | 19,483 | | | 20,171 | |
Investment securities held to maturity, at amortized cost (fair value of $547,290 and $568,128 at March 31, 2024 and December 31, 2023, respectively) | |
| 677,578 | |
| 685,728 | |
Loans receivable | |
| 1,309,712 | |
| 1,308,552 | |
Allowance for credit losses | | | (5,142) | | | (5,121) | |
Loans receivable, net of allowance for credit losses | |
| 1,304,570 | |
| 1,303,431 | |
Federal Home Loan Bank stock, at cost | |
| 12,232 | |
| 12,192 | |
Federal Reserve Bank stock, at cost | | | 3,182 | | | 3,180 | |
Accrued interest receivable | |
| 6,281 | |
| 6,105 | |
Premises and equipment, net | |
| 7,144 | |
| 7,185 | |
Right-of-use asset, net | | | 12,080 | | | 12,371 | |
Bank-owned life insurance | |
| 48,884 | |
| 48,638 | |
Income taxes receivable | | | 604 | | | 344 | |
Deferred income tax assets, net | |
| 2,820 | |
| 2,457 | |
Prepaid expenses and other assets | |
| 8,112 | |
| 8,211 | |
Total assets | | $ | 2,193,029 | | $ | 2,236,672 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Liabilities: | | | | | | | |
Deposits | | $ | 1,600,148 | | $ | 1,636,604 | |
Advances from the Federal Home Loan Bank | |
| 242,000 | |
| 242,000 | |
Advances from the Federal Reserve Bank | | | 50,000 | | | 50,000 | |
Securities sold under agreements to repurchase | |
| 10,000 | |
| 10,000 | |
Accounts payable and accrued expenses | |
| 20,113 | |
| 23,334 | |
Lease liability | | | 17,597 | | | 17,297 | |
Advance payments by borrowers for taxes and insurance | |
| 3,155 | |
| 6,351 | |
Total liabilities | |
| 1,943,013 | |
| 1,985,586 | |
| | | | | | | |
Commitments and contingencies: (Note 16) | | | | | | | |
| | | | | | | |
Stockholders’ Equity: | | | | | | | |
Preferred stock, $0.01 par value; authorized 50,000,000 shares, no shares issued or outstanding | |
| — | |
| — | |
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 8,826,613 shares at March 31, 2024 and December 31, 2023 | |
| 88 | |
| 88 | |
Additional paid-in capital | |
| 48,098 | |
| 48,022 | |
Unearned ESOP shares | |
| (2,324) | |
| (2,447) | |
Retained earnings | |
| 210,771 | |
| 211,644 | |
Accumulated other comprehensive loss | |
| (6,617) | |
| (6,221) | |
Total stockholders’ equity | |
| 250,016 | |
| 251,086 | |
Total liabilities and stockholders’ equity | | $ | 2,193,029 | | $ | 2,236,672 | |
See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.
1
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of IncomeOperations (Unaudited)
(Dollars in thousands, except per share data)
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|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
| $ | 13,837 |
| $ | 13,052 |
| $ | 40,877 |
| $ | 38,060 |
|
Investment securities |
|
| 3,169 |
|
| 3,496 |
|
| 9,328 |
|
| 11,121 |
|
Other investments |
|
| 171 |
|
| 121 |
|
| 530 |
|
| 411 |
|
Total interest income |
|
| 17,177 |
|
| 16,669 |
|
| 50,735 |
|
| 49,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 2,033 |
|
| 1,485 |
|
| 5,459 |
|
| 4,363 |
|
Advances from the Federal Home Loan Bank |
|
| 264 |
|
| 259 |
|
| 779 |
|
| 772 |
|
Securities sold under agreements to repurchase |
|
| 221 |
|
| 220 |
|
| 654 |
|
| 656 |
|
Total interest expense |
|
| 2,518 |
|
| 1,964 |
|
| 6,892 |
|
| 5,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
| 14,659 |
|
| 14,705 |
|
| 43,843 |
|
| 43,801 |
|
Provision for loan losses |
|
| 54 |
|
| 107 |
|
| 2 |
|
| 219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
| 14,605 |
|
| 14,598 |
|
| 43,841 |
|
| 43,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees on loan and deposit accounts |
|
| 427 |
|
| 493 |
|
| 1,490 |
|
| 1,422 |
|
Income on bank-owned life insurance |
|
| 228 |
|
| 240 |
|
| 681 |
|
| 727 |
|
Gain on sale of investment securities |
|
| 150 |
|
| 60 |
|
| 431 |
|
| 250 |
|
Gain on sale of loans |
|
| 28 |
|
| 114 |
|
| 154 |
|
| 304 |
|
Other |
|
| 76 |
|
| 96 |
|
| 234 |
|
| 320 |
|
Total noninterest income |
|
| 909 |
|
| 1,003 |
|
| 2,990 |
|
| 3,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 5,201 |
|
| 5,265 |
|
| 15,254 |
|
| 15,947 |
|
Occupancy |
|
| 1,529 |
|
| 1,432 |
|
| 4,439 |
|
| 4,285 |
|
Equipment |
|
| 882 |
|
| 865 |
|
| 2,630 |
|
| 2,683 |
|
Federal deposit insurance premiums |
|
| 152 |
|
| 144 |
|
| 448 |
|
| 596 |
|
Other general and administrative expenses |
|
| 997 |
|
| 939 |
|
| 3,451 |
|
| 3,181 |
|
Total noninterest expense |
|
| 8,761 |
|
| 8,645 |
|
| 26,222 |
|
| 26,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 6,753 |
|
| 6,956 |
|
| 20,609 |
|
| 19,913 |
|
Income taxes |
|
| 2,580 |
|
| 2,792 |
|
| 7,814 |
|
| 7,928 |
|
Net income |
| $ | 4,173 |
| $ | 4,164 |
| $ | 12,795 |
| $ | 11,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 0.45 |
| $ | 0.45 |
| $ | 1.38 |
| $ | 1.31 |
|
Diluted earnings per share |
| $ | 0.44 |
| $ | 0.44 |
| $ | 1.34 |
| $ | 1.28 |
|
Cash dividends paid per common share |
| $ | 0.30 |
| $ | 0.18 |
| $ | 0.70 |
| $ | 0.54 |
|
Basic weighted-average shares outstanding |
|
| 9,280,018 |
|
| 9,102,837 |
|
| 9,250,537 |
|
| 9,065,892 |
|
Diluted weighted-average shares outstanding |
|
| 9,521,201 |
|
| 9,325,506 |
|
| 9,535,875 |
|
| 9,280,260 |
|
| | | | | | | |
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2024 |
| 2023 |
| ||
Interest income: | | | | | | | |
Loans | | $ | 12,065 | | $ | 11,454 | |
Investment securities | | | 4,313 | | | 4,540 | |
Other investments | |
| 1,613 | |
| 727 | |
Total interest income | |
| 17,991 | |
| 16,721 | |
| | | | | | | |
Interest expense: | | | | | | | |
Deposits | |
| 6,779 | |
| 3,530 | |
Advances from the Federal Home Loan Bank | |
| 1,810 | |
| 1,054 | |
Advances from the Federal Reserve Bank | | | 595 | | | — | |
Securities sold under agreements to repurchase | |
| 46 | |
| 46 | |
Total interest expense | |
| 9,230 | |
| 4,630 | |
| | | | | | | |
Net interest income | |
| 8,761 | |
| 12,091 | |
Provision (reversal of provision) for credit losses | |
| 19 | |
| (100) | |
| | | | | | | |
Net interest income after provision (reversal of provision) for credit losses | |
| 8,742 | |
| 12,191 | |
| | | | | | | |
Noninterest income: | | | | | | | |
Service and other fees | |
| 273 | |
| 310 | |
Income on bank-owned life insurance | |
| 246 | |
| 203 | |
Net gain on sale of loans | |
| — | |
| 1 | |
Other | |
| 74 | |
| 75 | |
Total noninterest income | |
| 593 | |
| 589 | |
| | | | | | | |
Noninterest expense: | | | | | | | |
Salaries and employee benefits | |
| 4,962 | |
| 5,404 | |
Occupancy | |
| 1,738 | |
| 1,623 | |
Equipment | |
| 1,323 | |
| 1,312 | |
Federal deposit insurance premiums | |
| 496 | |
| 245 | |
Other general and administrative expenses | |
| 1,541 | |
| 1,029 | |
Total noninterest expense | |
| 10,060 | |
| 9,613 | |
| | | | | | | |
(Loss) income before income taxes | |
| (725) | |
| 3,167 | |
Income tax (benefit) expense | |
| (243) | |
| 851 | |
Net (loss) income | | $ | (482) | | $ | 2,316 | |
| | | | | | | |
Basic (loss) earnings per share | | $ | (0.06) | | $ | 0.26 | |
Diluted (loss) earnings per share | | $ | (0.06) | | $ | 0.26 | |
Cash dividends declared per common share | | $ | 0.05 | | $ | 0.23 | |
Basic weighted-average shares outstanding | |
| 8,588,137 | |
| 8,774,634 | |
Diluted weighted-average shares outstanding | |
| 8,630,719 | |
| 8,806,744 | |
See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.
2
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
|
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|
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|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net income |
| $ | 4,173 |
| $ | 4,164 |
| $ | 12,795 |
| $ | 11,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unfunded pension liability |
|
| — |
|
| — |
|
| — |
|
| (21) |
|
Change in unrealized loss on securities |
|
| 12 |
|
| 4 |
|
| (1) |
|
| 10 |
|
Change in noncredit related loss on trust preferred securities |
|
| — |
|
| 45 |
|
| — |
|
| 91 |
|
Other comprehensive income (loss), net of tax |
|
| 12 |
|
| 49 |
|
| (1) |
|
| 80 |
|
Comprehensive income |
| $ | 4,185 |
| $ | 4,213 |
| $ | 12,794 |
| $ | 12,065 |
|
| | | | | | | |
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2024 |
| 2023 |
| ||
Net (loss) income | | $ | (482) | | $ | 2,316 | |
| | | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Unrealized (loss) gain on securities | |
| (396) | |
| 337 | |
Total other comprehensive (loss) income, net of tax | |
| (396) | |
| 337 | |
Comprehensive (loss) income | | $ | (878) | | $ | 2,653 | |
See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.
3
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Unaudited)
(Dollars in thousands, except per share data)
|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |
|
|
|
|
| Additional |
| Unearned |
|
|
|
| Other |
| Total |
| ||||
|
| Common |
| Paid-in |
| ESOP |
| Retained |
| Comprehensive |
| Stockholders’ |
| ||||||
|
| Stock |
| Capital |
| Shares |
| Earnings |
| Income (Loss) |
| Equity |
| ||||||
Balances at December 31, 2015 |
| $ | 96 |
| $ | 70,118 |
| $ | (6,361) |
| $ | 161,024 |
| $ | (5,236) |
| $ | 219,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 11,985 |
|
| — |
|
| 11,985 |
|
Other comprehensive income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 80 |
|
| 80 |
|
Cash dividends paid ($0.54 per share) |
|
| — |
|
| — |
|
| — |
|
| (4,938) |
|
| — |
|
| (4,938) |
|
Share-based compensation |
|
| 1 |
|
| 1,778 |
|
| — |
|
| — |
|
| — |
|
| 1,779 |
|
Allocation of 36,699 ESOP shares |
|
| — |
|
| 612 |
|
| 367 |
|
| — |
|
| — |
|
| 979 |
|
Repurchase of 100,758 shares of company common stock |
|
| (1) |
|
| (2,724) |
|
| — |
|
| — |
|
| — |
|
| (2,725) |
|
Exercise of 93,100 options for common stock |
|
| 1 |
|
| 1,616 |
|
| — |
|
| — |
|
| — |
|
| 1,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2016 |
| $ | 97 |
| $ | 71,400 |
| $ | (5,994) |
| $ | 168,071 |
| $ | (5,156) |
| $ | 228,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016 |
| $ | 98 |
| $ | 71,914 |
| $ | (5,872) |
| $ | 168,962 |
| $ | (5,316) |
| $ | 229,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 12,795 |
|
| — |
|
| 12,795 |
|
Other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1) |
|
| (1) |
|
Cash dividends paid ($0.70 per share) |
|
| — |
|
| — |
|
| — |
|
| (6,471) |
|
| — |
|
| (6,471) |
|
Share-based compensation |
|
| — |
|
| 48 |
|
| — |
|
| — |
|
| — |
|
| 48 |
|
Allocation of 36,699 ESOP shares |
|
| — |
|
| 777 |
|
| 367 |
|
| — |
|
| — |
|
| 1,144 |
|
Repurchase of 91,456 shares of company common stock |
|
| (1) |
|
| (2,905) |
|
| — |
|
| — |
|
| — |
|
| (2,906) |
|
Exercise of 166,837 options for common stock |
|
| 2 |
|
| 2,895 |
|
| — |
|
| — |
|
| — |
|
| 2,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2017 |
| $ | 99 |
| $ | 72,729 |
| $ | (5,505) |
| $ | 175,286 |
| $ | (5,317) |
| $ | 237,292 |
|
| | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
| Common |
|
|
|
| Additional |
| Unearned |
|
|
|
| Other |
| Total | ||||
|
| Shares |
| Common |
| Paid-in |
| ESOP |
| Retained |
| Comprehensive |
| Stockholders’ | ||||||
|
| Outstanding |
| Stock |
| Capital |
| Shares |
| Earnings |
| Loss |
| Equity | ||||||
Balances at December 31, 2023 | | 8,826,613 | | $ | 88 | | $ | 48,022 | | $ | (2,447) | | $ | 211,644 | | $ | (6,221) | | $ | 251,086 |
| | | | | | | | | | | | | | | | | | | | |
Net loss | | — | |
| — | | | — | | | — | | | (482) | | | — | | | (482) |
Other comprehensive loss | | — | |
| — | | | — | | | — | | | — | | | (396) | | | (396) |
Cash dividends declared ($0.05 per share) | | — | |
| — | | | — | | | — | | | (391) | | | — | | | (391) |
Share-based compensation | | — | |
| — | | | 81 | | | — | | | — | | | — | | | 81 |
Allocation of 12,234 ESOP shares | | — | |
| — | | | (5) | | | 123 | | | — | | | — | | | 118 |
| | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2024 | | 8,826,613 | | $ | 88 | | $ | 48,098 | | $ | (2,324) | | $ | 210,771 | | $ | (6,617) | | $ | 250,016 |
See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.
4
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Unaudited)
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |
|
| Common |
|
|
|
| Additional |
| Unearned |
|
|
|
| Other |
| Total |
| ||||
|
| Shares |
| Common |
| Paid-in |
| ESOP |
| Retained |
| Comprehensive |
| Stockholders’ |
| ||||||
|
| Outstanding |
| Stock |
| Capital |
| Shares |
| Earnings |
| Loss |
| Equity |
| ||||||
Balances at December 31, 2022 | | 9,071,076 | | $ | 91 | | $ | 51,825 | | $ | (2,936) | | $ | 215,314 | | $ | (7,744) | | $ | 256,550 | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | | — | |
| — | | | — | | | — | | | 2,316 | | | — | | | 2,316 | |
Other comprehensive income | | — | |
| — | | | — | | | — | | | — | | | 337 | | | 337 | |
Cumulative change in accounting principle (1) | | | | | | | | | | | | | | (2,319) | | | | | | (2,319) | |
Cash dividends declared ($0.23 per share) | | — | |
| — | | | — | | | — | | | (1,975) | | | — | | | (1,975) | |
Share-based compensation | | 4,540 | |
| — | | | (42) | | | — | | | — | | | — | | | (42) | |
Allocation of 12,234 ESOP shares | | — | |
| — | | | 159 | | | 122 | | | — | | | — | | | 281 | |
Repurchase of shares of common stock | | (69,065) | | | (1) | | | (1,386) | | | — | | | — | | | — | | | (1,387) | |
| | | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2023 | | 9,006,551 | | $ | 90 | | $ | 50,556 | | $ | (2,814) | | $ | 213,336 | | $ | (7,407) | | $ | 253,761 | |
(1) | Represents the impact of the adoption of Accounting Standard Update 2016-13. |
See accompanying Notes to Consolidated Financial Statements.
5
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
| $ | 12,795 |
| $ | 11,985 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
Provision for loan losses |
|
| 2 |
|
| 219 |
|
Depreciation and amortization |
|
| 816 |
|
| 886 |
|
Deferred income tax expense |
|
| 733 |
|
| 1,041 |
|
Amortization of fees, discounts, and premiums |
|
| (339) |
|
| (604) |
|
Origination of loans held for sale |
|
| (19,023) |
|
| (39,336) |
|
Proceeds from sales of loans held for sale |
|
| 20,284 |
|
| 38,844 |
|
Gain on sale of loans, net |
|
| (154) |
|
| (304) |
|
Gain on sale of investment securities held to maturity |
|
| (431) |
|
| (250) |
|
Net loss on disposal of premises and equipment |
|
| 25 |
|
| — |
|
ESOP expense |
|
| 1,144 |
|
| 979 |
|
Share-based compensation expense |
|
| 48 |
|
| 1,779 |
|
Increase in accrued interest receivable |
|
| (253) |
|
| (66) |
|
Net increase in bank-owned life insurance |
|
| (682) |
|
| (727) |
|
Net increase in prepaid expenses and other assets |
|
| (1,722) |
|
| (316) |
|
Net increase in accounts payable and accrued expenses |
|
| 1,083 |
|
| 1,558 |
|
Net decrease in advance payments by borrowers for taxes and insurance |
|
| (1,938) |
|
| (1,828) |
|
Net (increase) decrease in income taxes receivable |
|
| 119 |
|
| (737) |
|
Net increase (decrease) in income taxes payable |
|
| 77 |
|
| (444) |
|
|
|
|
|
|
|
|
|
Net cash from operating activities |
|
| 12,584 |
|
| 12,679 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of investment securities held to maturity |
|
| (51,894) |
|
| (2,523) |
|
Purchases of investment securities available for sale |
|
| (2,970) |
|
| — |
|
Principal repayments on investment securities held to maturity |
|
| 40,925 |
|
| 60,077 |
|
Principal repayments on investment securities available for sale |
|
| 50 |
|
| — |
|
Proceeds from sale of investment securities held to maturity |
|
| 7,446 |
|
| 3,923 |
|
Loan originations, net of principal repayments on loans receivable |
|
| (98,468) |
|
| (112,498) |
|
Purchases of Federal Home Loan Bank stock |
|
| (1,609) |
|
| (275) |
|
Proceeds from redemption of Federal Home Loan Bank stock |
|
| 1,541 |
|
| 120 |
|
Purchases of Federal Reserve Bank stock |
|
| (8) |
|
| (59) |
|
Purchases of premises and equipment |
|
| (2,172) |
|
| (190) |
|
|
|
|
|
|
|
|
|
Net cash from investing activities |
|
| (107,159) |
|
| (51,425) |
|
| | | | | | | |
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2024 |
| 2023 |
| ||
Cash flows from operating activities: | | | | | | | |
Net (loss) income | | $ | (482) | | $ | 2,316 | |
Adjustments to reconcile net (loss) income to net cash from operating activities: | | | | | | | |
Provision (reversal of provision) for credit losses | |
| 19 | |
| (100) | |
Depreciation and amortization | |
| 242 | |
| 292 | |
Deferred income tax (benefit) expense | |
| (220) | |
| 266 | |
Accretion of fees, discounts, and premiums, net | |
| (60) | |
| (90) | |
Amortization of right-of-use asset | | | 695 | | | 716 | |
Origination of loans held for sale | |
| — | |
| (355) | |
Proceeds from sales of loans held for sale | |
| — | |
| 356 | |
Gain on sale of loans, net | |
| — | |
| (1) | |
ESOP expense | |
| 118 | |
| 281 | |
Share-based compensation expense | |
| 81 | |
| (42) | |
Net increase in accrued interest receivable | |
| (169) | |
| (13) | |
Income on bank-owned life insurance | |
| (246) | |
| (203) | |
Net decrease (increase) in prepaid expenses and other assets | |
| 99 | |
| (154) | |
Net decrease in accounts payable and accrued expenses | |
| (3,183) | |
| (1,661) | |
Net decrease in lease liability | | | (104) | | | (694) | |
Net decrease in advance payments by borrowers for taxes and insurance | |
| (3,196) | |
| (2,691) | |
Net (decrease) increase in income taxes payable | |
| (260) | |
| 196 | |
| | | | | | | |
Net cash used in operating activities | |
| (6,666) | |
| (1,581) | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of investment securities held to maturity | |
| — | |
| (6,693) | |
Principal repayments on investment securities held to maturity | |
| 8,162 | |
| 8,879 | |
Principal repayments on investment securities available for sale | | | 159 | | | 220 | |
Principal repayments on loans receivable, net of loan originations | |
| (1,126) | |
| 409 | |
Purchases of Federal Home Loan Bank stock | | | (40) | | | (5,087) | |
Proceeds from redemption of Federal Home Loan Bank stock | |
| — | |
| 840 | |
Purchases of Federal Reserve Bank stock | | | (3) | | | (7) | |
Purchases of premises and equipment | |
| (202) | |
| (116) | |
| | | | | | | |
Net cash from (used in) investing activities | |
| 6,950 | |
| (1,555) | |
(Continued)
56
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash flows from financing activities: |
|
|
|
|
|
|
|
Net increase in deposits |
| $ | 78,167 |
| $ | 19,376 |
|
Proceeds from advances from the Federal Home Loan Bank |
|
| 38,525 |
|
| 3,000 |
|
Repayments of advances from the Federal Home Loan Bank |
|
| (38,525) |
|
| (3,000) |
|
Purchases of Fed Funds |
|
| 10 |
|
| 10 |
|
Sales of Fed Funds |
|
| (10) |
|
| (10) |
|
Proceeds from exercise of stock options |
|
| — |
|
| 566 |
|
Repurchases of common stock |
|
| (9) |
|
| (1,674) |
|
Cash dividends paid |
|
| (6,471) |
|
| (4,938) |
|
|
|
|
|
|
|
|
|
Net cash from financing activities |
|
| 71,687 |
|
| 13,330 |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
| (22,888) |
|
| (25,416) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period |
|
| 61,273 |
|
| 65,919 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period |
| $ | 38,385 |
| $ | 40,503 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
Interest on deposits and borrowings |
| $ | 6,698 |
| $ | 5,770 |
|
Income taxes |
|
| 6,956 |
|
| 8,068 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
|
|
|
|
Company stock acquired through stock swap and net settlement transactions |
| $ | 2,897 |
| $ | 1,051 |
|
| | | | | | | |
|
| Three Months Ended | | ||||
|
| March 31, | | ||||
|
| 2024 |
| 2023 | | ||
Cash flows from financing activities: | | | | | | | |
Net decrease in deposits | | $ | (36,456) | | $ | (54,179) | |
Proceeds from advances from the Federal Home Loan Bank | |
| — | |
| 126,000 | |
Repayments of advances from the Federal Home Loan Bank | |
| — | |
| (21,000) | |
Proceeds from advances from the Federal Reserve Bank | |
| 100,000 | |
| — | |
Repayments of advances from the Federal Reserve Bank | |
| (100,000) | |
| — | |
Repurchases of common stock | |
| — | |
| (1,345) | |
Cash dividends paid | |
| (428) | |
| (2,033) | |
| | | | | | | |
Net cash (used in) from financing activities | |
| (36,884) | |
| 47,443 | |
| | | | | | | |
Net change in cash and cash equivalents | |
| (36,600) | |
| 44,307 | |
| | | | | | | |
Cash and cash equivalents at beginning of the period | |
| 126,659 | |
| 40,553 | |
| | | | | | | |
Cash and cash equivalents at end of the period | | $ | 90,059 | | $ | 84,860 | |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | |
Cash paid for: | | | | | | | |
Interest on deposits and borrowings | | $ | 9,128 | | $ | 4,318 | |
Income taxes | |
| 237 | |
| 390 | |
| | | | | | | |
Supplemental disclosure of noncash investing and financing activities: | | | | | | | |
Company stock repurchased through stock swap and net settlement transactions | | $ | — | | $ | 43 | |
Establishment of right-of-use asset, net of incentives and modifications | | | 404 | | | 118 | |
Establishment of lease liability, net of modifications | | | 404 | | | 118 | |
See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.
67
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) BasisOrganization
Territorial Bancorp Inc. (the Company) is a Maryland corporation and is the holding company for Territorial Savings Bank (the Bank). Territorial Savings Bank is a Hawaii state-chartered bank headquartered in Honolulu, Hawaii and is a member of Presentationthe Federal Reserve System. Territorial Savings Bank has one subsidiary, Territorial Financial Services, Inc.
(2) Summary of Significant Accounting Policies
(a) | Basis of Presentation |
The accompanying unaudited interim condensed consolidated financial statements of Territorial Bancorp Inc. (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim condensed consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed as part of the Annual Report on Form 10-K for the year ended December 31, 2016.2023. In the opinion of management, all adjustments necessary for a fair presentation have been made and consist only of normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the year.
.
(b) | Allowance of Credit Losses (ACL) on Loans and Securities |
The current expected credit losses (CECL) accounting standard requires an estimate of the credit losses expected over the life of the financial instrument. CECL replaces the incurred loss approach that delayed the recognition of a credit loss until it was probable that a loss event occurred. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL during the period when management deems the loan to be uncollectible and all interest previously accrued but not collected is reversed against the current period ACL.
(2) Organization
On July 10, 2009, Territorial Savings Bank completed a conversion from a mutual holding company to a stock holding company. AsThe estimate of expected credit losses is based on information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of financial instruments. Historical loss experience is generally the starting point for estimating expected credit losses. The Company considers whether the historical loss experience should be adjusted for asset specific risk characteristics or current conditions at the reporting date that did not exist over the historical reporting period. These qualitative adjustments can include changes in the economy, loan underwriting standards, and delinquency trends. The Company then considers future economic conditions as part of the conversion, Territorial Mutual Holding Companyone year reasonable and Territorial Savings Group, Inc.,supportable forecast period.
Our loan portfolio is segmented into three pools for estimating our allowance for credit losses on loans: real estate, commercial, and consumer loans. They were established upon the former holding companies for Territorial Savings Bank, ceasedadoption of Accounting Standards Update (ASU) 2016-13. Only three pools are used to existsegment our loan portfolio because loans within the pools share similar risk characteristics and were originated using similar underwriting standards. Loans that do not share similar risk characteristics would be evaluated on an individual basis and excluded from the collective evaluation. Historically, we have disclosed information about our loans and allowance based on class of financing receivable. The portfolio segments align with the class of financing receivables as separate legal entities,follows:
● | Real estate: One- to four-family residential, multi-family residential, and commercial mortgage |
● | Commercial: Commercial loans other than mortgage loans |
● | Consumer: Home equity loans, loans on deposit accounts, and all other consumer loans |
8
Collateral dependent loans are not considered to share the same risk characteristics with the three pools discussed above. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and Territorial Bancorp Inc. becamerepayment is expected to be provided substantially through the holding company for Territorial Savings Bank. Upon completionsale or operation of the conversioncollateral. For loans which are considered to be collateral dependent, the Company has elected to estimate the expected credit loss based on the fair value of the collateral less selling costs. If the fair value of the collateral less selling costs is less than the loan’s amortized cost basis, the Company records a partial charge-off to reduce the loan’s amortized cost basis for the difference between the collateral fair value less selling costs and reorganization,the amortized cost basis.
The ACL on loans and accrued interest is calculated on a special “liquidation account” was established in an amountloan by loan basis. If the loan’s amortized cost basis is less than the total present value of cash flows calculated using a discounted cash flow approach, the ACL is equal to the amortized cost basis minus the total equitypresent value of Territorial Mutual Holding Companycash flows on the loan discounted by the loan’s effective interest rate. The expected cash flows include estimates of loan charge-offs, recoveries, and prepayments. Economic variables which have a strong correlation with our historical loan charge-offs, recoveries, and prepayments are utilized in forecasting loan charge-offs, recoveries, and prepayments during the one year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the historical reversion rate is used to calculate loan charge-offs, recoveries, and prepayments for the remaining expected life of the loan. The reversion rate is based on historical averages and applied on a straight-line basis. Qualitative adjustments may be made to account for current conditions and forward looking events not captured in the quantitative calculation. The forecast and reversion rate utilize historical behavior during select periods of time. Our Real Estate and Consumer loan pools utilize a vintage approach where historical losses, recoveries, and prepayment experience is determined using loans that have originated within a specified period. Our Commercial loans utilize a reporting period approach where historical losses, recoveries, and prepayment experience is considered during a selected historical period of time. Off-balance sheet forecasts utilize a reporting period approach.
Loans receivable are stated at amortized cost which includes the principal amount outstanding, less the allowance for credit losses, deferred loan origination fees and costs, commitment fees, and cumulative net charge-offs. Interest income on loans receivable is accrued as earned. Accrued interest receivable on loans was $4.7 million and $4.6 million as of March 31, 2024 and December 31, 2008. 2023, respectively, and is included in accrued interest receivable on the Consolidated Balance Sheet.
The liquidation account is to provide eligible account holders and supplemental eligible account holders who maintain their deposit accounts with Territorial Savings Bank afterCompany determines delinquency status by considering the conversion withnumber of days full payments required by the contractual terms of the loan are past due. The Company has a liquidation interestpolicy of placing loans on a nonaccrual basis when 90 days or more contractually delinquent or when, in the unlikely eventopinion of management, collection of all or part of the complete liquidationprincipal balance appears doubtful, unless the loans are well secured and in the process of Territorial Savings Bank aftercollection. When a loan is placed on nonaccrual status, all interest previously accrued and not collected is reversed against current period provision for credit losses. For nonaccrual loans, the conversion. Company records payments received as a reduction in principal. A nonaccrual loan may be restored to an accrual basis when principal and interest payments are current and full payment of principal and interest is expected.
The balanceCompany’s off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate loans that are not conditionally cancellable by the Company. Under the CECL accounting standard, expected credit losses on these amounts are calculated using a forecasted estimate of the liquidation accountlikelihood that funding of the unfunded amount/commitment will occur and the historical reversion rate. Changes to the reserve for off-balance sheet credit exposures are recorded through increases or decreases to the provision for credit losses on the Consolidated Statements of Income. There were no reserves for off-balance sheet credit exposures at March 31, 2024 or December 31, 2016 was $12.2 million.2023.
On June 25, 2014, Territorial Savings Bank converted from a federal savings bank to a Hawaii state-chartered savings bank. On July 10, 2014, Territorial Savings Bank became a memberWhile management utilizes its best judgment and information available, the adequacy of the Federal Reserve System.ACL and the reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment including economic uncertainty, changes in interest rates and loan prepayments, and the view of the regulatory authorities toward classification of assets and the level of ACL and the reserve for off-balance sheet credit exposures. Additionally, the level of ACL and the reserve for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio, changes in loan prepayments and off-balance sheet credit exposures, changes in charge-off rates, and changes in forecasted economic
9
conditions. If actual results differ significantly from our assumptions, our ACL and the reserve for off-balance sheet credit exposures may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses.
The Company is required to utilize the CECL methodology to estimate expected credit losses with respect to held-to-maturity (HTM) investment securities. Since all of the Company’s HTM investment securities were issued by U.S. government agencies or U.S. government-sponsored enterprises, which include the explicit and/or implicit guarantee of the U.S. government and have a long history of no credit losses, the Company has not recorded a credit loss on these securities. The unrealized losses on these securities were due to changes in interest rates, relative to when the securities were purchased, and are not due to decreases in the credit quality of the securities.
Available for sale (AFS) investment securities in an unrealized loss position are evaluated for impairment. The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the investment securities amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the investment security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. The Company has not recorded an ACL related to our AFS investment securities.
Changes in the ACL are recorded as a provision (or reversal of provision) for credit losses. Losses are charged against the ACL when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
(3) Recently Issued and Adopted Accounting Pronouncements
In May 2014,June 2022, the Financial Accounting Standards Board (FASB) amended the Revenue Recognition topicissued ASU 2022-03, Fair Value Measurement of the FASB Accounting Standards Codification (ASC). The amendment seeksEquity Securities Subject to Contractual Sale Restrictions to clarify that contractual sale restrictions should not be considered in the principles for recognizing revenue as well as to develop common revenue standards for U.S. generally accepted accounting principles and International Financial Reporting Standards. The Company has reviewed all revenue sources to determine if the sources are in scope for this guidance. Net interest income from financial assets and liabilities are explicitly excluded from the scopemeasurement of the amendment. The Company’s overall assessment of key in-scope revenue sources include service charges on deposit accounts, rental income from safe deposit boxes and commissions on insurance and annuity sales. The guidance is not expected to have a significant impact on the Company’s revenue recognition for these key in-scope revenue sources. The Company plans to adopt this amendment effective January 1, 2018, under the modified retrospective approach with a cumulative effect adjustment to opening retained earnings, if such adjustment is considered to be significant.
In January 2016, the FASB amended the Financial Instruments – Overall topic of the FASB ASC. The amendment addresses several aspects of recognition, measurement, presentation and disclosure of financial instruments. Included are: (a) a requirement to measure equity investments at fair value, with changes in fair value recognized in net income, (b) a simplification of the impairment assessment of equity investments without readily determinable fair values, (c) the elimination of the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet, and (d) a requirement to use the exit price notion when measuring the fair value of financial instrumentsan equity security. The Company owns stock in the Federal Reserve Bank (FRB) and in the Federal Home Loan Bank (FHLB) which is valued at historical cost which approximates fair value. Ownership of stock is a condition for disclosure purposes. Sinceservices the Company doesreceives from the FRB and FHLB. The stock is not own any equity securities subject topublicly traded and can only be issued, exchanged, redeemed or repurchased by the amendment in its investment portfolio,FRB and the amendment will not have a significant impact on its consolidated financial statements. The Company will continue to evaluate the effects that the
7
use of exit prices will have on its fair value disclosures. The amendment isFHLB. ASU 2022-03 was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. 2023. The Company adopted the standard on January 1, 2024, and it did not have a material effect on its consolidated financial statements.
In February 2016,October 2023, the FASB amendedissued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the Leases topicU.S. Securities and Exchange Commission’s (SEC) Disclosure Update and Simplification Initiative. The ASU is intended to clarify or improve disclosure and presentation requirements of the FASB ASC. The primary effectsa variety of topics. Many of the amendment will beallow users to recognize lease assetsmore easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements and lease liabilities onalign the balance sheet and to disclose certain information about leasing arrangements. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has several lease agreements for branch locations and equipment that will require recognition on the consolidated balance sheets upon adoption of the amendment. The Company will continue to evaluate the effects that the adoption of this amendment will have on its consolidated financial statements.
In March 2016,requirements in the FASB amendedaccounting standard codification with the Compensation – Stock Compensation topic of the FASB ASC. The amendment includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of the amendment require companies to record all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement rather than as an adjustment to additional paid-in capital. In addition, the amendment requires that excess tax benefits should be reported as an operating activity on the statement of cash flows and increases the amount an employer can withhold for taxes for share-based compensation awards. The amendment is effective for annual periods beginning after December 15, 2016. The Company adopted this amendment effective January 1, 2017. The adoption of this amendment has resulted in increased volatility to income tax expense related to excess tax benefits and tax deficiencies for share-based compensation. The amount of tax benefits or deficiencies recognized in income tax expense depends on the number of options exercised and the difference in the stock prices at the exercise and grant dates. For the three and nine months ended September 30, 2017, the Company recognized $150,000 and $541,000, respectively, of tax benefits related to the exercise of stock options.
In June 2016, the FASB amended various sections of the FASB ASC related to the accounting for credit losses on financial instruments. The amendment changes the threshold for recognizing losses from a “probable” to an “expected” model. The new model is referred to as the current expected credit loss model and applies to loans, leases, held-to-maturity investments, loan commitments and financial guarantees. The amendment requires the measurement of all expected credit losses for financial assets as of the reporting date (including historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures that will help financial statement users understand the estimates and judgments used in estimating credit losses and evaluating the credit quality of an organization’s portfolio. The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company will apply the amendment’s provisions as a cumulative-effect adjustment to retained earnings at the beginning of the first period the amendment is effective.SEC’s regulations. The Company is currently evaluating the effects that the adoption of this amendmentASU 2023-06 will have on its consolidated financial statements by gathering the information that is necessary to make the calculations required by the amendment. This may result in increased credit losses on financial instruments recorded in the consolidated financial statements.
In March 2017,November 2023, the FASB amended the Compensation – Retirement Benefits topicissued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU is intended to improve financial reporting by requiring disclosure of the FASB ASC. The amendment requires the service cost component of net benefit costincremental segment information on an annual and interim basis to be reported in the same line item as other compensation costs arising from employee services. It also requires the other components of net benefit costenable investors to develop more decision-useful financial analyses. This ASU will be reported in the income statement separately from the service cost component. The amendment is effective for annualfiscal years beginning after December 31, 2023, and interim periods within fiscal years beginning after December 15, 2017, including interim periods within those annual periods.2024. Early adoption is permitted. The Company has performed a preliminary evaluation and does not expect the adoption of this amendmentASU to have a material effect on its consolidated financial statements.
810
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects that ASU 2023-09 will have on its consolidated financial statements.
(4) Cash and Cash Equivalents
The table below presents the balances of cash and cash equivalents:
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | |||||||
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
|
| ||||
(Dollars in thousands) |
| 2017 |
| 2016 |
|
| 2024 |
| 2023 |
|
| ||||
Cash and due from banks |
| $ | 10,118 |
| $ | 9,043 |
| | $ | 10,714 | | $ | 10,471 | | |
Interest-earning deposits in other banks |
|
| 28,267 |
|
| 52,230 |
| |
| 79,345 | |
| 116,188 | | |
Cash and cash equivalents |
| $ | 38,385 |
| $ | 61,273 |
| | $ | 90,059 | | $ | 126,659 | | |
Interest-earning deposits in other banks consist primarily of deposits at the Federal Reserve Bank of San Francisco.
(5) Investment Securities
The amortized cost, gross unrealized gains and losses, fair valuesvalue, and related ACL of investment securities are as follows:
| | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrealized | | Estimated | |
| | ||||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Fair Value |
|
| ACL | ||||
March 31, 2024: | | | | | | | | | | | | | | | |
Available-for-sale: | | | | | | | | | | | | | | | |
Mortgage-backed securities issued by U.S. government-sponsored enterprises | | $ | 22,415 | | $ | — |
| $ | (2,932) | | $ | 19,483 | | $ | — |
Held-to-maturity: | | | | | | | | | | | | | | | |
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises | | | 677,578 | | | 36 |
| | (130,324) | | | 547,290 | | | — |
| | | | | | | | | | | | | | | |
Total | | $ | 699,993 | | $ | 36 |
| $ | (133,256) | | $ | 566,773 | | $ | — |
| | | | | | | | | | | | | | | |
December 31, 2023: | | | | | | | | | | | | | | | |
Available-for-sale: | | | | | | | | | | | | | | | |
Mortgage-backed securities issued by U.S. government-sponsored enterprises | | $ | 22,563 | | $ | — |
| $ | (2,392) | | $ | 20,171 | | $ | — |
Held-to-maturity: | | | | | | | | | | | | | | | |
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises | | | 685,728 | | | 68 |
| | (117,668) | | | 568,128 | | | — |
| | | | | | | | | | | | | | | |
Total | | $ | 708,291 | | $ | 68 |
| $ | (120,060) | | $ | 588,299 | | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized |
| Gross Unrealized |
| Estimated |
| ||||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Fair Value |
| ||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored mortgage-backed securities |
| $ | 2,920 |
| $ | — |
| $ | (10) |
| $ | 2,910 |
|
Total |
| $ | 2,920 |
| $ | — |
| $ | (10) |
| $ | 2,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored mortgage-backed securities |
| $ | 411,065 |
| $ | 7,374 |
| $ | (4,252) |
| $ | 414,187 |
|
Trust preferred securities |
|
| 592 |
|
| 333 |
|
| — |
|
| 925 |
|
Total |
| $ | 411,657 |
| $ | 7,707 |
| $ | (4,252) |
| $ | 415,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored mortgage-backed securities |
| $ | 406,498 |
| $ | 7,285 |
| $ | (7,024) |
| $ | 406,759 |
|
Trust preferred securities |
|
| 1,158 |
|
| 5 |
|
| — |
|
| 1,163 |
|
Total |
| $ | 407,656 |
| $ | 7,290 |
| $ | (7,024) |
| $ | 407,922 |
|
11
The amortized cost and estimated fair value of investment securities by maturity date at September 30, 2017March 31, 2024 are shown below. Incorporated in the maturity schedule are mortgage-backed and trust preferred securities, which are
9
allocated using the contractual maturity as a basis. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
|
| Amortized |
| Estimated |
|
| Amortized |
| Estimated |
| ||||
(Dollars in thousands) |
| Cost |
| Fair Value |
|
| Cost |
| Fair Value |
| ||||
Available-for-sale: |
|
|
|
|
|
|
| | | | | | | |
Due within 5 years |
| $ | — |
| $ | — |
| |||||||
Due after 5 years through 10 years |
|
| — |
|
| — |
| |||||||
Due after 10 years |
|
| 2,920 |
|
| 2,910 |
| | $ | 22,415 | | $ | 19,483 | |
Total |
| $ | 2,920 |
| $ | 2,910 |
| | $ | 22,415 | | $ | 19,483 | |
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
Held-to-maturity: |
|
|
|
|
|
|
| | | | | | | |
Due within 5 years |
| $ | 12 |
| $ | 13 |
| | $ | 12 | | $ | 12 | |
Due after 5 years through 10 years |
|
| 50 |
|
| 50 |
| |
| 6 | |
| 6 | |
Due after 10 years |
|
| 411,595 |
|
| 415,049 |
| |
| 677,560 | |
| 547,272 | |
Total |
| $ | 411,657 |
| $ | 415,112 |
| | $ | 677,578 | | $ | 547,290 | |
|
|
|
|
|
|
|
|
Realized gains and losses and the proceeds from sales of securities held to maturity are shown in the table below. All sales of securities were U.S. government-sponsored mortgage-backed securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Proceeds from sales |
| $ | 2,393 |
| $ | 801 |
| $ | 7,446 |
| $ | 3,923 |
|
Gross gains |
|
| 150 |
|
| 60 |
|
| 431 |
|
| 250 |
|
Gross losses |
|
| — |
|
| — |
|
| — |
|
| — |
|
The sale of these mortgage-backedCompany did not sell any held-to-maturity or available-for-sale securities for whichduring the Company had already collected a substantial portion of the outstanding purchased principal (at least 85%), is in accordance with the Investments – Debtthree months ended March 31, 2024 and Equity Securities topic of the FASB ASC and does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity.2023.
Investmentsecurities with amortized costs of $275.6$549.7 million and $239.9$555.8 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively, were pledged to secure public deposits made by state and local governments, securities sold under agreements to repurchase, and transaction clearing accounts.accounts, and Federal Reserve Bank borrowings. Included in these amounts were $220.9 million and $74.0 million pledged to the Federal Reserve Bank’s discount window at March 31, 2024 and December 31, 2023, respectively, and $52.6 million and $202.1 million pledged to the Federal Reserve Bank’s Bank Term Funding Program at March 31, 2024 and December 31, 2023, respectively.
12
Provided below is a summary of investment securities which were in an unrealized loss position at September 30, 2017March 31, 2024 and December 31, 2016.2023. The Company does not intend to sell held-to-maturity and available-for-sale securities
10
until such time as the value recovers or the securities mature and it is not more likely than not that the Company will be required to sell the securities prior to recovery of value or the securities mature.
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|
|
| |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
|
| Less Than 12 Months |
| 12 Months or Longer |
| Total |
|
| Less Than 12 Months |
| 12 Months or Longer |
| Total |
| ||||||||||||||||||||||||||||
|
|
|
|
| Unrealized |
|
|
|
| Unrealized |
| Number of |
|
|
|
| Unrealized |
|
|
|
|
| Unrealized |
|
|
|
| Unrealized |
| Number of |
|
|
|
| Unrealized |
| ||||||
Description of securities |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Securities |
| Fair Value |
| Losses |
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Securities |
| Fair Value |
| Losses |
| ||||||||||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | |
|
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
March 31, 2024: | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
U.S. government-sponsored mortgage-backed securities |
| $ | 2,910 |
| $ | 10 |
| $ | — |
| $ | — |
| 1 |
| $ | 2,910 |
| $ | 10 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Mortgage-backed securities issued by U.S. government-sponsored enterprises | | $ | — | | $ | — | | $ | 19,483 | | $ | (2,932) |
| 4 | | $ | 19,483 | | $ | (2,932) | | |||||||||||||||||||||
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
U.S. government-sponsored mortgage-backed securities |
| $ | 117,700 |
| $ | 1,875 |
| $ | 67,276 |
| $ | 2,377 |
| 47 |
| $ | 184,976 |
| $ | 4,252 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises | | | — | | | — | | | 544,088 | | | (130,324) |
| 152 | | | 544,088 | | | (130,324) | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Total | | $ | — | | $ | — | | $ | 563,571 | | $ | (133,256) | | 156 | | $ | 563,571 | | $ | (133,256) | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
December 31, 2023: | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Available-for-sale: | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Mortgage-backed securities issued by U.S. government sponsored enterprises | | $ | — | | $ | — | | $ | 20,171 | | $ | (2,392) |
| 4 | | $ | 20,171 | | $ | (2,392) | | |||||||||||||||||||||
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
U.S. government-sponsored mortgage-backed securities |
| $ | 179,741 |
| $ | 5,599 |
| $ | 23,402 |
| $ | 1,425 |
| 50 |
| $ | 203,143 |
| $ | 7,024 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises | | | 10,326 | | | (107) | | | 554,514 | | | (117,561) |
| 152 | | | 564,840 | | | (117,668) | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Total | | $ | 10,326 | | $ | (107) | | $ | 574,685 | | $ | (119,953) | | 156 | | $ | 585,011 | | $ | (120,060) | |
Mortgage-Backed Securities. The unrealized losses on the Company’s investment in mortgage-backed securities were caused by increases in market interest rates subsequent to purchase. All of the mortgage-backed securities are guaranteed by Freddie Mac or Fannie Mae, which are U.S. government-sponsored enterprises, or Ginnie Mae, which is a U.S. government agency. Since the decline in market value is attributable to changes in interest rates and not credit quality, and the Company does not intend to sell these investments until maturity, and it is not more likely than not that the Company will be required to sell such investments prior to recovery of its cost basis, the Company does not considerno allowance for credit losses was recorded for these investments to be other-than-temporarily impairedsecurities as of September 30, 2017 andMarch 31, 2024 or December 31, 2016.2023.
Trust Preferred Securities. At September 30, 2017, the Company owned one trust preferred security, PreTSL XXIII. PreTSL XXIII has an amortized cost and a remaining cost basis of $592,000 at September 30, 2017. The trust preferred security represents an investment in a pool of debt obligations issued primarily by holding companies for Federal Deposit Insurance Corporation-insured financial institutions. This security is classified in the Company’s held-to-maturity investment portfolio.
The trust preferred securities market is considered to be inactive as only six transactions have occurred over the past 69 months in the same tranche of securities that we own and no new issuances of pooled trust preferred securities have occurred since 2007. We used a discounted cash flow model to determine whether this security is other-than-temporarily impaired. The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates, estimated deferral and default rates on collateral, and estimated cash flows.
Based on the Company’s review, the Company’s investment in PreTSL XXIII did not incur additional impairment during the nine months ended September 30, 2017 and there is no accumulated other comprehensive loss related to noncredit factors.
It is reasonably possible that the fair value of the trust preferred security could decline in the near term if the overall economy and the financial condition of some of the issuers deteriorate further and the liquidity of this security remains low. As a result, there is a risk that the Company’s remaining cost basis of $592,000 on the trust preferred security could be credit-related other-than-temporarily impaired in the near term. The impairment, if any, could be material to the Company’s consolidated statements of income.
1113
The table below provides a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold:
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| ||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| ||
Balance at the beginning of the period |
| $ | 2,403 |
| $ | 2,403 |
|
Credit losses on debt securities for which other-than-temporary impairment was not previously recognized |
|
| — |
|
| — |
|
Credit losses on debt securities which were sold |
|
| — |
|
| — |
|
Balance at the end of the period |
| $ | 2,403 |
| $ | 2,403 |
|
The table below shows the components of accumulated other comprehensive loss, net of taxes, resulting from other-than-temporarily impaired securities:
|
|
|
|
|
|
|
|
|
| September 30, |
| ||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| ||
Noncredit losses on other-than-temporarily impaired securities, net of taxes |
| $ | — |
| $ | 56 |
|
(6) Loans Receivable and Allowance for LoanCredit Losses
The components of loans receivable, net of allowance for credit losses (ACL) as of March 31, 2024 and December 31, 2023 are as follows:
|
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, |
| ||||||||
| | | | | | | |||||||
| | March 31, | | December 31, | |||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
|
| 2024 |
| 2023 | ||||
Real estate loans: |
|
|
|
|
|
|
| | | | | | |
First mortgages: |
|
|
|
|
|
|
| | | | | | |
One- to four-family residential |
| $ | 1,390,037 |
| $ | 1,289,364 |
| | $ | 1,275,897 | | $ | 1,277,544 |
Multi-family residential |
|
| 9,334 |
|
| 9,551 |
| |
| 5,604 | |
| 5,855 |
Construction, commercial and other |
|
| 22,490 |
|
| 23,346 |
| ||||||
Construction, commercial, and other | |
| 12,554 | |
| 11,631 | |||||||
Home equity loans and lines of credit |
|
| 13,474 |
|
| 14,805 |
| |
| 9,219 | |
| 7,058 |
Total real estate loans |
|
| 1,435,335 |
|
| 1,337,066 |
| |
| 1,303,274 | |
| 1,302,088 |
Other loans: |
|
|
|
|
|
|
| | | | | | |
Loans on deposit accounts |
|
| 285 |
|
| 204 |
| |
| 180 | |
| 196 |
Consumer and other loans |
|
| 4,798 |
|
| 4,360 |
| |
| 8,305 | |
| 8,257 |
Total other loans |
|
| 5,083 |
|
| 4,564 |
| | | 8,485 | | | 8,453 |
Less: |
|
|
|
|
|
|
| ||||||
| | | | | | | |||||||
Total loans | |
| 1,311,759 | |
| 1,310,541 | |||||||
| | | | | | | |||||||
Net unearned fees and discounts |
|
| (3,166) |
|
| (3,191) |
| |
| (2,047) | |
| (1,989) |
Allowance for loan losses |
|
| (2,499) |
|
| (2,452) |
| ||||||
Total unearned fees, discounts and allowance for loan losses |
|
| (5,665) |
|
| (5,643) |
| ||||||
Loans receivable, net |
| $ | 1,434,753 |
| $ | 1,335,987 |
| ||||||
Total loans, net of unearned fees and discounts | |
| 1,309,712 | |
| 1,308,552 | |||||||
| | | | | | | |||||||
Allowance for credit losses | |
| (5,142) | |
| (5,121) | |||||||
Loans receivable, net of allowance for credit losses | | $ | 1,304,570 | | $ | 1,303,431 |
12
The table below presents the activity in the allowance for loancredit losses by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
| Construction, |
| Home |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
| Commercial |
| Equity |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
| and Other |
| Loans and |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
|
| Residential |
| Mortgage |
| Lines of |
| Consumer |
|
|
|
|
|
|
|
| Real |
| Commercial |
| Consumer | |
|
|
| |||||||||
(Dollars in thousands) |
| Mortgage |
| Loans |
| Credit |
| and Other |
| Unallocated |
| Totals |
|
| Estate |
| Loans |
| Loans | | Unallocated |
| Totals | |||||||||||
Three months ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Three months ended March 31, 2024: | | | | | | | | | | | | | | | | |||||||||||||||||||
Balance, beginning of period |
| $ | 1,602 |
| $ | 556 |
| $ | 1 |
| $ | 53 |
| $ | 245 |
| $ | 2,457 |
| | $ | 4,502 | | $ | 514 | | $ | 105 | | $ | — | | $ | 5,121 |
Provision (reversal of provision) for loan losses |
|
| 30 |
|
| 16 |
|
| — |
|
| 18 |
|
| (10) |
|
| 54 |
| |||||||||||||||
|
|
| 1,632 |
|
| 572 |
|
| 1 |
|
| 71 |
|
| 235 |
|
| 2,511 |
| |||||||||||||||
(Reversal of provision) provision for credit losses | |
| (26) | | | 12 | | | 33 | | | — | |
| 19 | |||||||||||||||||||
| |
| 4,476 | |
| 526 | |
| 138 | |
| — | |
| 5,140 | |||||||||||||||||||
Charge-offs | |
| (2) | | | — | | | (6) | | | — | |
| (8) | |||||||||||||||||||
Recoveries | |
| 9 | | | — | | | 1 | | | — | |
| 10 | |||||||||||||||||||
Net recoveries (charge-offs) | |
| 7 | |
| — | |
| (5) | |
| — | |
| 2 | |||||||||||||||||||
Balance, end of period | | $ | 4,483 | | $ | 526 | | $ | 133 | | $ | — | | $ | 5,142 | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Three months ended March 31, 2023: | | | | | | | | | | | | | | | | |||||||||||||||||||
Balance, beginning of period | | $ | 1,263 | | $ | 434 | | $ | 76 | | $ | 259 | | $ | 2,032 | |||||||||||||||||||
Adoption of ASU No. 2016-13 | | | 3,393 | | | 71 | | | 4 | | | (259) | | | 3,209 | |||||||||||||||||||
(Reversal of provision) provision for credit losses | |
| (27) | | | (88) | | | 15 | | | — | |
| (100) | |||||||||||||||||||
| |
| 4,629 | |
| 417 | |
| 95 | |
| — | |
| 5,141 | |||||||||||||||||||
Charge-offs |
|
| — |
|
| — |
|
| — |
|
| (12) |
|
| — |
|
| (12) |
| |
| — | |
| — | |
| (15) | |
| — | |
| (15) |
Recoveries |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
| 1 | |
| — | |
| 1 |
Net charge-offs |
|
| — |
|
| — |
|
| — |
|
| (12) |
|
| — |
|
| (12) |
| |
| — | |
| — | |
| (14) | |
| — | |
| (14) |
Balance, end of period |
| $ | 1,632 |
| $ | 572 |
| $ | 1 |
| $ | 59 |
| $ | 235 |
| $ | 2,499 |
| | $ | 4,629 | | $ | 417 | | $ | 81 | | $ | — | | $ | 5,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Nine months ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance, beginning of period |
| $ | 1,594 |
| $ | 519 |
| $ | 2 |
| $ | 115 |
| $ | 222 |
| $ | 2,452 |
| |||||||||||||||
Provision (reversal of provision) for loan losses |
|
| (26) |
|
| 53 |
|
| (1) |
|
| (37) |
|
| 13 |
|
| 2 |
| |||||||||||||||
|
|
| 1,568 |
|
| 572 |
|
| 1 |
|
| 78 |
|
| 235 |
|
| 2,454 |
| |||||||||||||||
Charge-offs |
|
| (11) |
|
| — |
|
| — |
|
| (24) |
|
| — |
|
| (35) |
| |||||||||||||||
Recoveries |
|
| 75 |
|
| — |
|
| — |
|
| 5 |
|
| — |
|
| 80 |
| |||||||||||||||
Net recoveries (charge-offs) |
|
| 64 |
|
| — |
|
| — |
|
| (19) |
|
| — |
|
| 45 |
| |||||||||||||||
Balance, end of period |
| $ | 1,632 |
| $ | 572 |
| $ | 1 |
| $ | 59 |
| $ | 235 |
| $ | 2,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Construction, |
| Home |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| Commercial |
| Equity |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| and Other |
| Loans and |
|
|
|
|
|
|
|
|
|
| ||
|
| Residential |
| Mortgage |
| Lines of |
| Consumer |
|
|
|
|
|
|
| ||||
(Dollars in thousands) |
| Mortgage |
| Loans |
| Credit |
| and Other |
| Unallocated |
| Totals |
| ||||||
Three months ended September 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 1,444 |
| $ | 567 |
| $ | 3 |
| $ | 56 |
| $ | 206 |
| $ | 2,276 |
|
Provision (reversal of provision) for loan losses |
|
| 133 |
|
| (87) |
|
| (1) |
|
| 54 |
|
| 8 |
|
| 107 |
|
|
|
| 1,577 |
|
| 480 |
|
| 2 |
|
| 110 |
|
| 214 |
|
| 2,383 |
|
Charge-offs |
|
| (33) |
|
| — |
|
| — |
|
| (5) |
|
| — |
|
| (38) |
|
Recoveries |
|
| 15 |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
| 17 |
|
Net charge-offs |
|
| (18) |
|
| — |
|
| — |
|
| (3) |
|
| — |
|
| (21) |
|
Balance, end of period |
| $ | 1,559 |
| $ | 480 |
| $ | 2 |
| $ | 107 |
| $ | 214 |
| $ | 2,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 1,380 |
| $ | 517 |
| $ | 3 |
| $ | 72 |
| $ | 194 |
| $ | 2,166 |
|
Provision (reversal of provision) for loan losses |
|
| 190 |
|
| (37) |
|
| (1) |
|
| 47 |
|
| 20 |
|
| 219 |
|
|
|
| 1,570 |
|
| 480 |
|
| 2 |
|
| 119 |
|
| 214 |
|
| 2,385 |
|
Charge-offs |
|
| (33) |
|
| — |
|
| — |
|
| (23) |
|
| — |
|
| (56) |
|
Recoveries |
|
| 22 |
|
| — |
|
| — |
|
| 11 |
|
| — |
|
| 33 |
|
Net charge-offs |
|
| (11) |
|
| — |
|
| — |
|
| (12) |
|
| — |
|
| (23) |
|
Balance, end of period |
| $ | 1,559 |
| $ | 480 |
| $ | 2 |
| $ | 107 |
| $ | 214 |
| $ | 2,362 |
|
In 2016, the Company changed the look-back period that is used to calculate the historicalThe credit loss rates from five to seven years. The look-back period was extended to seven years because the longer look-back period is considered to be more representative of an entire economic cycle. The seven year look-back period includes loan charge-offs and recoveries related to the recession and the subsequent economic recovery. The changeprovisions in the look-back periodthree months ended March 31, 2024 was primarily due to an increase in our consumer and commercial loan portfolios, an increase in forecasted charge-offs in the consumer loan portfolio, and a decrease in forecasted prepayments in the commercial loan portfolio. The reversal of credit loss provisions in the three months ended March 31, 2023 was primarily due to an improvement in economic conditions.
14
The Company primarily uses the aging of loans to monitor the credit quality of its loan portfolio. The table below presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans as of March 31, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving Loans | | | | |
| Amortized Cost of Term Loans by Origination Year | | Amortized | | | | ||||||||||||||||||
(Dollars in thousands) | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Cost Basis | | Total | ||||||||
March 31, 2024: | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days past due | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
60 - 89 days past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
90 days or more past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Loans not past due | | | 55 | | | 613 | | | 336 | | | 4,797 | | | — | | | 1,013 | | | 1,236 | | | 8,050 |
Total Commercial | | | 55 | | | 613 | | | 336 | | | 4,797 | | | — | | | 1,013 | | | 1,236 | | | 8,050 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days past due | | | 9 | | | — | | | — | | | — | | | — | | | — | | | — | | | 9 |
60 - 89 days past due | | | — | | | — | | | — | | | — | | | — | | | — | | | 170 | | | 170 |
90 days or more past due | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 |
Loans not past due | | | 97 | | | 46 | | | 73 | | | 13 | | | 3 | | | 52 | | | 8,194 | | | 8,478 |
Total Consumer | | | 106 | | | 46 | | | 73 | | | 13 | | | 3 | | | 52 | | | 8,365 | | | 8,658 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days past due | | | — | | | — | | | — | | | — | | | — | | | 98 | | | — | | | 98 |
60 - 89 days past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
90 days or more past due | | | — | | | — | | | — | | | — | | | — | | | 87 | | | — | | | 87 |
Loans not past due | | | 15,987 | | | 90,595 | | | 128,031 | | | 281,382 | | | 182,584 | | | 594,240 | | | — | | | 1,292,819 |
Total Real Estate | | | 15,987 | | | 90,595 | | | 128,031 | | | 281,382 | | | 182,584 | | | 594,425 | | | — | | | 1,293,004 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 16,148 | | $ | 91,254 | | $ | 128,440 | | $ | 286,192 | | $ | 182,587 | | $ | 595,490 | | $ | 9,601 | | $ | 1,309,712 |
The Company did not have a material effect onany revolving loans that converted to term loans during the allowance for loan losses.three months ended March 31, 2024.
1315
Management considers the allowance for loan losses at September 30, 2017 to be at an appropriate level to provide for probable losses that can be reasonably estimated based on general and specific conditions at that date. While the Company uses the best information it has available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. To the extent actual outcomes differ from the estimates, additional provisions for credit losses may be required that would reduce future earnings. In addition, as an integral part of their examination process, the bank regulators periodically review the allowance for loan losses and may require the Company to increase the allowance based on their analysis of information available at the time of their examination.
The table below presents by credit quality indicator, loan class, and year of origination, the balance inamortized cost basis of the allowance forCompany’s loans as of December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving Loans | | | | |
| Amortized Cost of Term Loans by Origination Year | | Amortized | | | | ||||||||||||||||||
(Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Cost Basis | | Total | ||||||||
December 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days past due | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
60 - 89 days past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
90 days or more past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Loans not past due | | | 387 | | | 353 | | | 4,836 | | | — | | | 203 | | | 856 | | | 1,230 | | | 7,865 |
Total Commercial | | | 387 | | | 353 | | | 4,836 | | | — | | | 203 | | | 856 | | | 1,230 | | | 7,865 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days past due | | | 4 | | | — | | | — | | | — | | | — | | | — | | | — | | | 4 |
60 - 89 days past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
90 days or more past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Loans not past due | | | 271 | | | 80 | | | 20 | | | 4 | | | 14 | | | 42 | | | 6,137 | | | 6,568 |
Total Consumer | | | 275 | | | 80 | | | 20 | | | 4 | | | 14 | | | 42 | | | 6,137 | | | 6,572 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days past due | | | — | | | — | | | — | | | — | | | — | | | 428 | | | — | | | 428 |
60 - 89 days past due | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
90 days or more past due | | | — | | | — | | | — | | | — | | | 140 | | | 87 | | | — | | | 227 |
Loans not past due | | | 91,195 | | | 129,148 | | | 283,571 | | | 183,887 | | | 91,113 | | | 514,546 | | | — | | | 1,293,460 |
Total Real Estate | | | 91,195 | | | 129,148 | | | 283,571 | | | 183,887 | | | 91,253 | | | 515,061 | | | — | | | 1,294,115 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 91,857 | | $ | 129,581 | | $ | 288,427 | | $ | 183,891 | | $ | 91,470 | | $ | 515,959 | | $ | 7,367 | | $ | 1,308,552 |
The Company did not have any revolving loans that converted to term loans during the year ended December 31, 2023.
The following table presents by loan lossesclass and year of origination, the gross charge-offs recorded investment in loans by portfolio segmentduring the three months ended March 31, 2024 and based on impairment method:2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Construction, |
| Home |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| Commercial |
| Equity |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| and Other |
| Loans and |
|
|
|
|
|
|
|
|
|
| ||
|
| Residential |
| Mortgage |
| Lines of |
| Consumer |
|
|
|
|
|
|
| ||||
(Dollars in thousands) |
| Mortgage |
| Loans |
| Credit |
| and Other |
| Unallocated |
| Totals |
| ||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Collectively evaluated for impairment |
|
| 1,632 |
|
| 572 |
|
| 1 |
|
| 59 |
|
| 235 |
|
| 2,499 |
|
Total ending allowance balance |
| $ | 1,632 |
| $ | 572 |
| $ | 1 |
| $ | 59 |
| $ | 235 |
| $ | 2,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending loan balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 4,099 |
| $ | — |
| $ | 170 |
| $ | — |
| $ | — |
| $ | 4,269 |
|
Collectively evaluated for impairment |
|
| 1,392,170 |
|
| 22,405 |
|
| 13,310 |
|
| 5,098 |
|
| — |
|
| 1,432,983 |
|
Total ending loan balance |
| $ | 1,396,269 |
| $ | 22,405 |
| $ | 13,480 |
| $ | 5,098 |
| $ | — |
| $ | 1,437,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Collectively evaluated for impairment |
|
| 1,594 |
|
| 519 |
|
| 2 |
|
| 115 |
|
| 222 |
|
| 2,452 |
|
Total ending allowance balance |
| $ | 1,594 |
| $ | 519 |
| $ | 2 |
| $ | 115 |
| $ | 222 |
| $ | 2,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending loan balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 5,587 |
| $ | — |
| $ | 156 |
| $ | 1 |
| $ | — |
| $ | 5,744 |
|
Collectively evaluated for impairment |
|
| 1,290,209 |
|
| 23,256 |
|
| 14,656 |
|
| 4,574 |
|
| — |
|
| 1,332,695 |
|
Total ending loan balance |
| $ | 1,295,796 |
| $ | 23,256 |
| $ | 14,812 |
| $ | 4,575 |
| $ | — |
| $ | 1,338,439 |
|
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total | |||||||
Three months ended March 31, 2024: | | | | | | | | | | | | | | | | | | | | | |
One- to four-family residential mortgages | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2 | | $ | 2 |
Loans on deposit accounts | | | — | | | 3 | | | — | | | — | | | — | | | — | | | 3 |
Consumer and other | | | — | | | 3 | | | — | | | — | | | — | | | — | | | 3 |
Total | | $ | — | | $ | 6 | | $ | — | | $ | — | | $ | — | | $ | 2 | | $ | 8 |
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total | |||||||
Three months ended March 31, 2023: | | | | | | | | | | | | | | | | | | | | | |
Loans on deposit accounts | | $ | 15 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Total | | $ | 15 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
1416
The table below presents the balance of impaired loans individually evaluated for impairment by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
| |
|
| Recorded |
| Principal |
| ||
(Dollars in thousands) |
| Investment |
| Balance |
| ||
September 30, 2017: |
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| $ | 4,099 |
| $ | 4,976 |
|
Home equity loans and lines of credit |
|
| 170 |
|
| 229 |
|
Total |
| $ | 4,269 |
| $ | 5,205 |
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| $ | 5,587 |
| $ | 6,469 |
|
Home equity loans and lines of credit |
|
| 156 |
|
| 204 |
|
Consumer and other |
|
| 1 |
|
| 1 |
|
Total |
| $ | 5,744 |
| $ | 6,674 |
|
The table below presents the average recorded investment and interest income recognized on impaired loans by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| Average |
| Interest |
| Average |
| Interest |
| ||||
|
| Recorded |
| Income |
| Recorded |
| Income |
| ||||
(Dollars in thousands) |
| Investment |
| Recognized |
| Investment |
| Recognized |
| ||||
2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| $ | 4,135 |
| $ | 13 |
| $ | 4,203 |
| $ | 43 |
|
Home equity loans and lines of credit |
|
| 172 |
|
| — |
|
| 177 |
|
| — |
|
Total |
| $ | 4,307 |
| $ | 13 |
| $ | 4,380 |
| $ | 43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| $ | 5,936 |
| $ | 19 |
| $ | 6,000 |
| $ | 57 |
|
Home equity loans and lines of credit |
|
| 162 |
|
| — |
|
| 163 |
|
| — |
|
Total |
| $ | 6,098 |
| $ | 19 |
| $ | 6,163 |
| $ | 57 |
|
There were no loans individually evaluated for impairment with a related allowance for loan loss as of September 30, 2017 or December 31, 2016. Loans individually evaluated for impairment do not have an allocated allowance for loan loss because they were written down to fair value at the time of impairment.
15
The table below presents the aging of loans and accrual status by class of loans:loans, net of unearned fees and discounts. Loans with a formal loan payment deferral plan in place are not considered contractually past due or delinquent if the borrower is in compliance with the loan payment deferral plan.
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 Days |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| or More |
| |
|
| 30 - 59 |
| 60 - 89 |
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Past Due |
| ||||
|
| Days Past |
| Days Past |
| More |
| Total Past |
| Loans Not |
| Total |
| Nonaccrual |
| and Still |
| ||||||||
(Dollars in thousands) |
| Due |
| Due |
| Past Due |
| Due |
| Past Due |
| Loans |
| Loans |
| Accruing |
| ||||||||
March 31, 2024: | | | | | | | | | | | | | | | | | | | | | | | | | |
One- to four-family residential mortgages | | $ | 98 | | $ | — | | $ | 87 | | $ | 185 | | $ | 1,273,726 | | $ | 1,273,911 | | $ | 2,026 | | $ | — | |
Multi-family residential mortgages | |
| — | |
| — | |
| — | |
| — | |
| 5,597 | |
| 5,597 | |
| — | |
| — | |
Construction, commercial, and other mortgages | |
| — | |
| — | |
| — | |
| — | |
| 12,493 | |
| 12,493 | |
| — | |
| — | |
Home equity loans and lines of credit | |
| — | |
| — | |
| — | |
| — | |
| 9,221 | |
| 9,221 | |
| 9 | |
| — | |
Loans on deposit accounts | |
| — | |
| — | |
| — | |
| — | |
| 180 | |
| 180 | |
| — | |
| — | |
Consumer and other | |
| 9 | |
| 170 | |
| 1 | |
| 180 | |
| 8,130 | |
| 8,310 | |
| 170 | |
| — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 107 | | $ | 170 | | $ | 88 | | $ | 365 | | $ | 1,309,347 | | $ | 1,309,712 | | $ | 2,205 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | |
One- to four-family residential mortgages | | $ | 428 | | $ | — | | $ | 227 | | $ | 655 | | $ | 1,274,960 | | $ | 1,275,615 | | $ | 2,079 | | $ | — | |
Multi-family residential mortgages | |
| — | |
| — | |
| — | |
| — | |
| 5,848 | |
| 5,848 | |
| — | |
| — | |
Construction, commercial, and other mortgages | |
| — | |
| — | |
| — | |
| — | |
| 11,570 | |
| 11,570 | |
| — | |
| — | |
Home equity loans and lines of credit | |
| — | |
| — | |
| — | |
| — | |
| 7,060 | |
| 7,060 | |
| 11 | |
| — | |
Loans on deposit accounts | |
| — | |
| — | |
| — | |
| — | |
| 196 | |
| 196 | |
| — | |
| — | |
Consumer and other | |
| 4 | |
| — | |
| — | |
| 4 | |
| 8,259 | |
| 8,263 | |
| 170 | |
| — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 432 | | $ | — | | $ | 227 | | $ | 659 | | $ | 1,307,893 | | $ | 1,308,552 | | $ | 2,260 | | $ | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| More Than |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 Days |
| |
|
| 30 - 59 |
| 60 - 89 |
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Past Due |
| ||||
|
| Days Past |
| Days Past |
| Greater |
| Total Past |
| Loans Not |
| Total |
| Nonaccrual |
| and Still |
| ||||||||
(Dollars in thousands) |
| Due |
| Due |
| Past Due |
| Due |
| Past Due |
| Loans |
| Loans |
| Accruing |
| ||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| $ | 438 |
| $ | — |
| $ | 652 |
| $ | 1,090 |
| $ | 1,385,864 |
| $ | 1,386,954 |
| $ | 3,179 |
| $ | — |
|
Multi-family residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,315 |
|
| 9,315 |
|
| — |
|
| — |
|
Construction, commercial and other mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 22,405 |
|
| 22,405 |
|
| — |
|
| — |
|
Home equity loans and lines of credit |
|
| — |
|
| — |
|
| 41 |
|
| 41 |
|
| 13,439 |
|
| 13,480 |
|
| 170 |
|
| — |
|
Loans on deposit accounts |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 285 |
|
| 285 |
|
| — |
|
| — |
|
Consumer and other |
|
| 1 |
|
| 3 |
|
| — |
|
| 4 |
|
| 4,809 |
|
| 4,813 |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 439 |
| $ | 3 |
| $ | 693 |
| $ | 1,135 |
| $ | 1,436,117 |
| $ | 1,437,252 |
| $ | 3,349 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| $ | 185 |
| $ | 133 |
| $ | 1,358 |
| $ | 1,676 |
| $ | 1,284,590 |
| $ | 1,286,266 |
| $ | 4,402 |
| $ | — |
|
Multi-family residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,530 |
|
| 9,530 |
|
| — |
|
| — |
|
Construction, commercial and other mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 23,256 |
|
| 23,256 |
|
| — |
|
| — |
|
Home equity loans and lines of credit |
|
| 16 |
|
| 35 |
|
| 49 |
|
| 100 |
|
| 14,712 |
|
| 14,812 |
|
| 156 |
|
| — |
|
Loans on deposit accounts |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 204 |
|
| 204 |
|
| — |
|
| — |
|
Consumer and other |
|
| 3 |
|
| — |
|
| 1 |
|
| 4 |
|
| 4,367 |
|
| 4,371 |
|
| 1 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 204 |
| $ | 168 |
| $ | 1,408 |
| $ | 1,780 |
| $ | 1,336,659 |
| $ | 1,338,439 |
| $ | 4,559 |
| $ | — |
|
The Company primarily usestable below presents the agingamortized cost basis of loans on nonaccrual status as of March 31, 2024 and accrualDecember 31, 2023.
| | | | | | | | | |
(Dollars in thousands) |
| Nonaccrual Loans With a Related ACL |
| Nonaccrual Loans Without a Related ACL |
| Total Nonaccrual Loans | |||
March 31, 2024 | | | | | | | | | |
One- to four-family residential mortgages | | $ | 1,535 | | $ | 491 | | $ | 2,026 |
Home equity loans and lines of credit | | | 9 | | | — | | | 9 |
Consumer and other | | | 170 | | | — | | | 170 |
Total Nonaccrual Loans and Leases | | $ | 1,714 | | $ | 491 | | $ | 2,205 |
| | | | | | | | | |
December 31, 2023: | | | | | | | | | |
One- to four-family residential mortgages | | $ | 1,030 | | $ | 1,049 | | $ | 2,079 |
Home equity loans and lines of credit | | | 11 | | | — | | | 11 |
Consumer and other | | | 170 | | | — | | | 170 |
Total Nonaccrual Loans and Leases | | $ | 1,211 | | $ | 1,049 | | $ | 2,260 |
All payments received while on nonaccrual status to monitorare applied against the credit qualityprincipal balance of its loan portfolio. the loan.
When a mortgage loan becomes seriously delinquent (90 days or more contractually past due), it displays weaknesses that may result in a loss. As a loan becomes more delinquent, the likelihood of the borrower repaying the loan decreases and the loan becomes more collateral-dependent.collateral dependent. A mortgage loan becomes collateral-dependentcollateral dependent when the proceeds for repayment can be expected to come only from the sale or operation of the collateral and not from borrower repayments. Generally, appraisals are obtained after a loan becomes collateral-dependentcollateral dependent or is four months delinquent. The carrying value of collateral-dependent loans is adjusted to the fair value of the collateral less selling costs. Any commercial real estate, commercial, construction or equity loan that has a loan balance in excess of a specified amount is also periodically reviewed to determine whether the loan exhibits any weaknesses and is performing in accordance with its contractual terms.
The Company had 16 nonaccrualamortized cost basis of collateral-dependent loans, with a book value of $3.3 millionexcluding accrued interest receivable, was $87,000 and $227,000 at September 30, 2017 and 19 nonaccrual loans with a book value of $4.6 million as of DecemberMarch 31, 2016. The Company collected interest on nonaccrual loans of $137,000 and $149,000 during the nine months ended September 30, 2017 and 2016, respectively, but due to regulatory requirements, the Company recorded the interest as a reduction of principal. The Company would have recognized additional interest income of $169,000 and $211,000 during the nine months ended September 30, 2017 and 2016, had the loans been accruing interest. The Company did not have any loans more than 90 days past due and still accruing interest as of September 30, 20172024 and December 31, 2016.
There2023, respectively. These loans were no loans modifiedcollateralized by residential real estate in a troubled debt restructuring during the nine months ended September 30, 2017 or 2016. There were no new troubled debt restructurings within the past 12 months that subsequently defaulted.
16
The table below summarizes troubled debt restructurings by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of |
| Accrual |
| Number of |
| Nonaccrual |
|
| |||||
(Dollars in thousands) | Loans |
| Status |
| Loans |
| Status |
| Total | |||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| 4 |
| $ | 920 |
|
| 5 |
| $ | 1,097 |
| $ | 2,017 |
Home equity loans and lines of credit |
| — |
|
| — |
|
| 1 |
|
| 96 |
|
| 96 |
Total |
| 4 |
| $ | 920 |
|
| 6 |
| $ | 1,193 |
| $ | 2,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential mortgages |
| 5 |
| $ | 1,185 |
|
| 7 |
| $ | 1,629 |
| $ | 2,814 |
Home equity loans and lines of credit |
| — |
|
| — |
|
| 1 |
|
| 107 |
|
| 107 |
Total |
| 5 |
| $ | 1,185 |
|
| 8 |
| $ | 1,736 |
| $ | 2,921 |
One of the restructured loans, for $149,000, was more than 149 days delinquent and not accruing interest as of September 30, 2017March 31, 2024 and December 31, 2016. Restructurings include deferrals2023, the fair value of interest and/or principal payments and temporary or permanent reductions in interest rates due to
17
the financial difficultiescollateral less selling costs of these collateral-dependent loans exceeded the borrowers. At September 30, 2017, we hadamortized cost basis. There was no commitments to lend any additional funds to these borrowers.ACL on collateral-dependent loans.
The Company had no real estate owned as of September 30, 2017March 31, 2024 or December 31, 2016.2023. There was one one- to four-family residential mortgage loan for $87,000 in the process of foreclosure at March 31, 2024. There were threetwo one- to four-family residential mortgage loans totaling $652,000 and one home equity loan for $41,000$227,000 in the process of foreclosure as of September 30, 2017, and four one- to four-family residential mortgage loans totaling $702,000 in the process of foreclosure as ofat December 31, 2016. 2023.
Nearly all of our real estate loans are collateralized by real estate located in the State of Hawaii. Loan-to-value ratios on these real estate loans generally do not exceed 80% at the time of origination.
During the ninethree months ended September 30, 2017 and 2016,March 31, 2023, the Company sold $20.3 million and $38.6 million, respectively, of mortgage loans held for sale with principal balances of $360,000 and recognized gainsa gain of $154,000 and $304,000, respectively.$1,000. The Company did not sell any mortgage loans in the three months ended March 31, 2024. The Company had one loan held for sale for $495,000 at September 30, 2017 and fiveno loans held for sale totaling $1.6 million at DecemberMarch 31, 2016.2024 or 2023.
The Company serviced loans for others with principal balances of $37.5$32.6 million at September 30, 2017March 31, 2024 and $41.5$33.2 million at December 31, 2016.2023. Of these amounts, $2.0$19.1 million and $2.2$19.3 million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. The amount of contractually specified servicing fees earned for the nine-month periodsthree months ended September 30, 2017March 31, 2024 and 20162023 was $80,000$22,000 and $99,000, respectively. The amount of contractually specified servicing fees earned for the three-month periods ended September 30, 2017 and 2016 was $26,000 and $31,000,$23,000, respectively. The fees are reported in service fees on loan and deposit accountsother fees in the consolidated statementsConsolidated Statements of income.Income.
(7)Advances from the Federal Home Loan Bank
Federal Home Loan Bank advances are secured by a blanket pledge on the Bank’s assets not otherwise pledged. At March 31, 2024 and December 31, 2023, our credit limit with the FHLB of Des Moines was equal to 45% of Territorial Savings Bank’s total assets and we had the capacity to borrow an additional $613.1 million and $612.6 million, respectively.
Advances outstanding consisted of the following:
| | | | | | | | | | | | |
|
| March 31, 2024 |
| | December 31, 2023 |
| ||||||
|
|
|
|
| Weighted |
| |
|
|
| Weighted |
|
|
|
|
|
| Average |
| |
|
|
| Average |
|
(Dollars in thousands) |
| Amount |
| Rate |
|
| Amount |
| Rate |
| ||
Due within one year | | $ | 82,000 |
| 1.40 | % | | $ | 82,000 |
| 1.40 | % |
Due over 1 year to 2 years | |
| 45,000 |
| 2.87 | | |
| 45,000 |
| 2.87 | |
Due over 2 years to 3 years | |
| 40,000 |
| 3.70 | | |
| 20,000 |
| 3.20 | |
Due over 3 years to 4 years | | | 35,000 | | 4.22 | | | | 30,000 | | 4.24 | |
Due over 4 years to 5 years | | | 40,000 | | 4.41 | | | | 60,000 | | 4.32 | |
Due over 5 years to 6 years | |
| — |
| — | | |
| 5,000 |
| 4.38 | |
Total | | $ | 242,000 |
| 2.96 | % | | $ | 242,000 |
| 2.96 | % |
1718
(8) Advances from the Federal Reserve Bank
(7)In March 2023, the FRB created a new Bank Term Funding Program (BTFP) to make additional funding available to eligible depository institutions. The BTFP ceased making new loans on March 11, 2024. This program offered loans up to a one year term that can be prepaid without penalty. The amount that could be borrowed was based upon the par value of the securities pledged as collateral to the FRB.
Advances outstanding consisted of the following:
| | | | | | | | | | | | |
|
| March 31, 2024 |
| | December 31, 2023 |
| ||||||
|
|
|
|
| Weighted |
| |
|
|
| Weighted |
|
|
|
|
|
| Average |
| |
|
|
| Average |
|
(Dollars in thousands) |
| Amount |
| Rate |
|
| Amount |
| Rate |
| ||
Due within one year | | $ | 50,000 |
| 4.76 | % | | $ | 50,000 |
| 4.89 | % |
Total | | $ | 50,000 | | 4.76 | % | | $ | 50,000 | | 4.89 | % |
(9) Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase the identical securities sold are reflected as a liability with the securities collateralizing the agreements classified as an asset. Securities sold under agreements to repurchase are summarized as follows:
|
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | ||||||||||||
|
| September 30, 2017 |
| December 31, 2016 |
|
|
| March 31, 2024 |
| | December 31, 2023 |
| | ||||||||||||
|
|
|
|
| Weighted |
|
|
|
| Weighted |
|
|
|
|
|
| Weighted |
| |
|
|
| Weighted |
| |
|
| Repurchase |
| Average |
| Repurchase |
| Average |
|
|
| Repurchase |
| Average |
| | Repurchase |
| Average |
| | ||||
(Dollars in thousands) |
| Liability |
| Rate |
| Liability |
| Rate |
|
|
| Liability |
| Rate |
|
| Liability |
| Rate |
| | ||||
Maturing: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
1 year or less |
| $ | 25,000 |
| 1.46 | % | $ | 25,000 |
| 1.46 | % |
| | $ | 10,000 |
| 1.81 | % | | $ | 5,000 |
| 1.88 | % | |
Over 1 year to 2 years |
|
| 20,000 |
| 1.66 |
|
| — |
| — |
|
| | | — | | — | | | | 5,000 | | 1.73 | | |
Over 2 years to 3 years |
|
| 10,000 |
| 1.65 |
|
| 25,000 |
| 1.66 |
|
| |||||||||||||
Over 3 years to 4 years |
|
| — |
| — |
|
| 5,000 |
| 1.65 |
|
| |||||||||||||
Total |
| $ | 55,000 |
| 1.57 | % | $ | 55,000 |
| 1.57 | % |
| | $ | 10,000 |
| 1.81 | % | | $ | 10,000 |
| 1.81 | % | |
Below is a summary comparing the carrying value and fair value of securities pledged to secure repurchase agreements, the repurchase liability, and the amount at risk at September 30, 2017.March 31, 2024. The amount at risk is the greater of the carrying value or fair value over the repurchase liability and refers to the potential loss to the Company if the secured lender fails to return the security at the maturity date of the agreement. All the agreements to repurchase are with JP Morgan Securities and the securities pledged are mortgage-backed securities issued and guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. The repurchase liability cannot exceed 90% of the fair value of the securities pledged.pledged must exceed the repurchase liability by 5.00%. In the event of a decline in the fair value of securities pledged to less than the required amount due to market conditions or principal repayments, the Company is obligated to pledge additional securities or other suitable collateral to cure the deficiency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
| Carrying |
| Fair |
|
|
|
|
|
|
| Average |
|
| Carrying |
| Fair |
|
|
|
|
|
|
| Average |
| ||||
|
| Value of |
| Value of |
| Repurchase |
| Amount |
| Months to |
|
| Value of |
| Value of |
| Repurchase |
| Amount |
| Months to |
| ||||||||
(Dollars in thousands) |
| Securities |
| Securities |
| Liability |
| at Risk |
| Maturity |
|
| Securities |
| Securities |
| Liability |
| at Risk |
| Maturity |
| ||||||||
Maturing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Over 90 days |
| $ | 61,372 |
| $ | 61,614 |
| $ | 55,000 |
| $ | 6,614 |
| 11 |
| | $ | 14,046 | | $ | 11,758 | | $ | 10,000 | | $ | 4,046 |
| 9 | |
(8)19
(10) Offsetting of Financial Liabilities
Securities sold under agreements to repurchase are subject to a right of offset in the event of default. See note 7,Note 9, Securities Sold Under Agreements to Repurchase, for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
|
|
|
|
|
| Net Amount of |
| Gross Amount Not Offset in the |
|
|
|
|
|
|
|
|
| Net Amount of |
| Gross Amount Not Offset in the |
|
|
| ||||||||||||||
|
| Gross Amount |
| Gross Amount |
| Liabilities |
| Balance Sheet |
|
|
|
|
| Gross Amount |
| Gross Amount |
| Liabilities |
| Balance Sheet |
|
|
| ||||||||||||||
|
| of Recognized |
| Offset in the |
| Presented in the |
| Financial |
| Cash Collateral |
|
|
|
|
| of Recognized |
| Offset in the |
| Presented in the |
| Financial |
| Cash Collateral |
|
|
| ||||||||||
(Dollars in thousands) |
| Liabilities |
| Balance Sheet |
| Balance Sheet |
| Instruments |
| Pledged |
| Net Amount |
|
| Liabilities |
| Balance Sheet |
| Balance Sheet |
| Instruments | | Pledged |
| Net Amount | ||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
March 31, 2024: | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Securities sold under agreements to repurchase |
| $ | 55,000 |
| $ | — |
| $ | 55,000 |
| $ | 55,000 |
| $ | — |
| $ | — |
| | $ | 10,000 | | $ | — | | $ | 10,000 | | $ | 10,000 | | $ | — | | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
December 31, 2023: | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Securities sold under agreements to repurchase |
| $ | 55,000 |
| $ | — |
| $ | 55,000 |
| $ | 55,000 |
| $ | — |
| $ | — |
| | $ | 10,000 | | $ | — | | $ | 10,000 | | $ | 10,000 | | $ | — | | $ | — |
(9) Employee Benefit Plans
The Company has a noncontributory defined benefit pension plan (Pension Plan) that covers most employees with at least one year of service. Effective December 31, 2008, under approved changes to the Pension Plan, there were no further accruals of benefits for any participants and benefits will not increase with any additional years of service. Net periodic benefit cost, subsequent to December 31, 2008, has not been significant and is not disclosed in the table below.
18
The Company also sponsors a Supplemental Employee Retirement Plan (SERP), a noncontributory supplemental retirement benefit plan, which covers certain current and former employees of the Company for amounts in addition to those provided under the Pension Plan.
The components of net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SERP |
| SERP |
| ||||||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net periodic benefit cost for the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 19 |
| $ | 15 |
| $ | 39 |
| $ | 44 |
|
Interest cost |
|
| 34 |
|
| 32 |
|
| 104 |
|
| 98 |
|
Expected return on plan assets |
|
| — |
|
| — |
|
| — |
|
| — |
|
Amortization of prior service cost |
|
| — |
|
| — |
|
| — |
|
| — |
|
Recognized actuarial loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
Recognized curtailment loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
Net periodic benefit cost |
| $ | 53 |
| $ | 47 |
| $ | 143 |
| $ | 142 |
|
(10)(11) Employee Stock Ownership Plan
Effective January 1, 2009, Territorial Savings Bank adopted an Employee Stock Ownership Plan (ESOP) for eligible employees. The ESOP borrowed $9.8$9.8 million from the Company and used those funds to acquire 978,650 shares, or 8%, of the total number of shares issued by the Company in its initial public offering. The shares were acquired at a price of $10.00$10.00 per share.
The loan is secured by the shares purchased with the loan proceeds and will be repaid by the ESOP over the 20-year term of the loan with funds from Territorial Savings Bank’s contributions to the ESOP and dividends payable on the shares. The interest rate on the ESOP loan is an adjustable rate equal to the prime rate, as published in The Wall Street Journal.Journal. The interest rate adjusts annually and will be the prime rate on the first business day of the calendar year.
Shares purchased by the ESOP are held by a trustee in an unallocated suspense account, and shares are released annually from the suspense account on a pro-rata basis as principal and interest payments are made by the ESOP to the Company. The trustee allocates the shares released among participants on the basis of each participant’s proportional share of compensation relative to all participants. As shares are committed to be released from the suspense account, Territorial Savings Bank reports compensation expense based on the average fair value of shares released with a corresponding credit to stockholders’ equity. The shares committed to be released are considered outstanding for earnings per share computations. Compensation expense recognized for the three months ended September 30, 2017March 31, 2024 and 20162023 amounted to $298,000$118,000 and $283,000,$281,000, respectively. Compensation expense recognized for the nine months ended September 30, 2017 and 2016 amounted to $923,000 and $804,000, respectively.
Shares held by the ESOP trust were as follows:
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | |||||||
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
|
| ||||
|
| 2017 |
| 2016 |
|
| 2024 |
| 2023 |
|
| ||||
Allocated shares |
|
| 392,351 |
|
| 372,997 |
|
| | 632,172 |
| | 619,938 | | |
Unearned shares |
|
| 550,494 |
|
| 587,193 |
|
| | 232,431 |
| | 244,665 | | |
Total ESOP shares |
|
| 942,845 |
|
| 960,190 |
|
| | 864,603 |
| | 864,603 | | |
Fair value of unearned shares, in thousands |
| $ | 17,379 |
| $ | 19,283 |
| | $ | 1,873 | | $ | 2,728 | | |
The ESOP restoration plan is a nonqualified plan that provides supplemental benefits to certain executives who are prevented from receiving the full benefits contemplated by the ESOP’s benefit formula. The supplemental cash payments consist of payments representing shares that cannot be allocated to the participants under the ESOP due to IRS
19
limitations imposed on tax-qualified plans. We accrue for these benefits over the period during which employees provide services to earn these benefits. For the three months ended September 30, 2017March 31, 2024 and 2016,2023, we accrued $97,000$11,000 and $122,000, respectively, for the ESOP restoration plan. For the nine months ended September 30, 2017 and 2016, we accrued $161,000 and $244,000,$7,000, respectively, for the ESOP restoration plan.
(11)20
(12) Share-Based Compensation
On August 19, 2010,The shareholders of Territorial Bancorp Inc. adopted the 2010 Equity Incentive Plan which providesand the 2019 Equity Incentive Plan. These plans provide for awardsthe award of stock options and restricted stock to key officers and outside directors. In accordance with the Compensation – Stock Compensation topic of the FASB ASC, the cost of the 2010 Equity Incentive Planequity incentive plans is based on the fair value of the awards on the grant date. The fair value of time-based restricted stock is based on the closing price of the Company’s stock on the grant date. The fair value of performance-based stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate and option term. These assumptions arethat will vest based on our judgments regarding future events, are subjective in nature, and cannot be determined with precision.a performance condition is based on the closing price of the Company’s stock on the date of grant. The fair value of performance-based restricted stock that will vest on a market condition is based on a Monte Carlo valuation of the Company’s stock on the date of grant. The cost of the awards will be recognized on a straight-line basis over the three five- or six-year-year vesting period during which participants are required to provide services in exchange for the awards. There are 42,680 remaining shares available for new awards under the 2019 Equity Plan.
The Company recognized compensation expense, measured as the fair value of the share-based award on the date of grant, on a straight-line basis over the vesting period. Share-based compensation is recorded in the statementConsolidated Statements of incomeOperations as a component of salaries and employee benefits with a corresponding increase in shareholders’stockholders’ equity. The table below presents information on compensation expense and the related tax benefit for all share-based awards:
| | | | | | | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| Three Months Ended |
| Nine Months Ended |
|
| March 31, |
| ||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
(In thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| |||||||||||||||
Compensation expense |
| $ | 58 |
| $ | 457 |
| $ | 95 |
| $ | 1,780 |
| | $ | 81 | | $ | (42) | |
Income tax benefit |
|
| 23 |
|
| 183 |
|
| 38 |
|
| 714 |
| |
| 22 | |
| (11) | |
Shares of our common stock issued underShare-based compensation expense and the 2010 Equity Incentive Plan shall come from authorized shares.income tax benefit had credit balances during the three months ended March 31, 2023. The maximumcredit balances occurred when the number of shares that will be awarded underperformance-based restricted stock units (PRSUs), which are based on a performance condition, decreased because the plan will be 1,862,637 shares.Company’s three-year return on average equity declined in comparison to a peer group of banks.
Stock Options
The table below presents the stock option activity for the nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
| Aggregate |
| ||
|
|
|
| Average |
| Remaining |
| Intrinsic |
| ||
|
|
|
| Exercise |
| Contractual |
| Value |
| ||
|
| Options |
| Price |
| Life (years) |
| (in thousands) |
| ||
Options outstanding at December 31, 2016 |
| 706,430 |
| $ | 17.43 |
| 3.70 |
| $ | 10,884 |
|
Granted |
| — |
|
| — |
| — |
|
| — |
|
Exercised |
| 166,837 |
|
| 17.36 |
| — |
|
| 2,414 |
|
Forfeited |
| — |
|
| — |
| — |
|
| — |
|
Expired |
| — |
|
| — |
| — |
|
| — |
|
Options outstanding at September 30, 2017 |
| 539,593 |
| $ | 17.45 |
| 2.96 |
| $ | 7,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2015 |
| 832,300 |
| $ | 17.42 |
| 4.70 |
| $ | 8,588 |
|
Granted |
| — |
|
| — |
| — |
|
| — |
|
Exercised |
| 93,100 |
|
| 17.36 |
| — |
|
| 908 |
|
Forfeited |
| — |
|
| — |
| — |
|
| — |
|
Expired |
| — |
|
| — |
| — |
|
| — |
|
Options outstanding at September 30, 2016 |
| 739,200 |
| $ | 17.43 |
| 3.95 |
| $ | 8,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable at September 30, 2017 |
| 538,393 |
| $ | 17.44 |
| 2.95 |
| $ | 7,610 |
|
20
The following summarizes certain stock option activity of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
(In thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Intrinsic value of stock options exercised |
| $ | 744 |
| $ | 368 |
| $ | 2,414 |
| $ | 908 |
|
Proceeds received from stock options exercised |
|
| 971 |
|
| 551 |
|
| 2,897 |
|
| 1,616 |
|
Tax benefits realized from stock options exercised |
|
| 245 |
|
| 121 |
|
| 838 |
|
| 216 |
|
Total fair value of stock options that vested |
|
| 38 |
|
| 3,923 |
|
| 38 |
|
| 3,923 |
|
During the nine months ended September 30, 2017, we issued 75,707 shares of common stock, net, in exchange for 166,837 stock options and 91,130 shares of common stock. Pursuant to the provisions of our equity incentive plan, optionees are permitted to use the value of our common stock they own in a stock swap transaction or net settlement to pay the exercise price of stock options.
As of September 30, 2017, the Company had $4,000 of unrecognized compensation costs related to the stock option plan that will be amortized over a three-year vesting period.
Restricted Stock
Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of grant. Unvested restricted stock may not be disposed of or transferred during the vesting period. Restricted stock carries the right to receive dividends, although dividends attributable to restricted stock are retained by the Company until the shares vest, at which time they are paid to the award recipient. Unvested restricted stock that is time-based contain nonforfeitable dividend rights. Accrued dividends on restricted stock that do not vest based on performance or market conditions are forfeited.
21
The table below presents the time-based restricted stock activity:
| | | | | | | |||||||
|
|
|
|
|
|
|
|
|
| Weighted |
| ||
|
|
|
| Weighted |
|
| Time-Based |
| Average Grant |
| |||
|
|
|
| Average Grant |
|
| Restricted |
| Date Fair |
| |||
|
| Restricted |
| Date Fair |
|
| Stock |
| Value |
| |||
|
| Stock Awards |
| Value |
| ||||||||
Nonvested at December 31, 2016 |
| 2,400 |
| $ | 26.23 |
| |||||||
Unvested at December 31, 2023 |
| 25,738 | | $ | 21.61 | | |||||||
Granted |
| 9,604 |
|
| 29.53 |
|
| — | |
| — | | |
Vested |
| 1,200 |
|
| 26.23 |
|
| — | |
| — | | |
Forfeited |
| — |
|
| — |
|
| — | |
| — | | |
Nonvested at September 30, 2017 |
| 10,804 |
| $ | 29.16 |
| |||||||
|
|
|
|
|
|
| |||||||
Nonvested at December 31, 2015 |
| 114,542 |
| $ | 17.67 |
| |||||||
Unvested at March 31, 2024 |
| 25,738 | | $ | 21.61 | | |||||||
| | | | | | | |||||||
Unvested at December 31, 2022 |
| 23,664 | | $ | 24.15 | | |||||||
Granted |
| — |
|
| — |
|
| — | |
| — | | |
Vested |
| 112,142 |
|
| 17.49 |
|
| 4,540 | |
| 21.05 | | |
Forfeited |
| — |
|
| — |
|
| — | |
| — | | |
Nonvested at September 30, 2016 |
| 2,400 |
| $ | 26.23 |
| |||||||
Unvested at March 31, 2023 |
| 19,124 | | $ | 24.89 | |
During the nine months ended September 30, 2017, the Company issued 9,604 shares of restricted stock to certain members of executive management under the 2010 Equity Incentive Plan. The fair value of the restricted stock is based on the value of the Company’s stock on the date of grant. Restricted stock will vest over three years from the date of grant.
As of September 30, 2017,March 31, 2024, the Company had $278,000$288,000 of unrecognized compensation costs related to time-based restricted stock.
During the nine months ended September 30, 2017, the Company issued 11,525 of performance-based restricted stock units (PRSUs) to certain members of executive management under the 2010 Equity Incentive Plan. These PRSUs will vest in the first quarter of 2020 after our Compensation Committee determines whether a performance condition that compares the Company’s return on average equity to the SNL Bank Index is achieved. Depending on the Company’s
21
performance, the actual number of these PRSUs that are issued at the end of the vesting period can vary between 0% to 150% of the target award. For the PRSUs, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized. This estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.
The table below presents the PRSUs that will vest on a performance condition:
| | | | | | |||||
|
|
|
|
|
|
| Performance- |
| | |
| | Based Restricted | | | | |||||
|
| Performance- |
|
|
|
| Stock Units |
| Weighted | |
| | Based on a | | Average Grant | ||||||
| | Performance | | Date Fair | ||||||
|
| Based Restricted |
|
|
|
| Condition |
| Value | |
|
| Stock Units |
| Weighted | ||||||
|
| Based on a |
| Average Grant | ||||||
|
| Performance |
| Date Fair | ||||||
|
| Condition |
| Value | ||||||
Nonvested at December 31, 2016 |
| — |
| $ | — | |||||
Unvested at December 31, 2023 |
| 44,967 | | $ | 22.85 | |||||
Granted |
| 11,525 |
|
| 29.53 |
| — | |
| — |
Vested |
| — |
|
| — |
| — | |
| — |
Forfeited |
| — |
|
| — |
| 12,797 | |
| 26.77 |
Nonvested at September 30, 2017 |
| 11,525 |
| $ | 29.53 | |||||
Unvested at March 31, 2024 |
| 32,170 | | $ | 21.30 | |||||
| | | | | | |||||
Unvested at December 31, 2022 |
| 43,557 | | $ | 23.63 | |||||
Granted |
| — | |
| — | |||||
Vested |
| — | |
| — | |||||
Forfeited |
| 16,348 | |
| 21.05 | |||||
Unvested at March 31, 2023 |
| 27,209 | | $ | 25.18 |
The fair value of these PRSUs is based on the fair value of the Company’s stock on the date of grant. As of September 30, 2017,March 31, 2024, the Company had $215,000 ofno unrecognized compensation costs related to these PRSUs.PRSUs since meeting the performance condition is not probable. Compensation expense up to $457,000 may be recognized in the future if achievement of the performance condition becomes probable. Performance will be measured over a three-year performance period and will be cliff vested.
During The performance condition is measured quarterly by comparing the nine months ended September 30, 2017,Company’s three-year return on average equity to a peer group of banks. The Company’s percentile ranking in the Company issued 2,881peer group is used to adjust the number of PRSUs that are expected to certain membersvest.
22
Grant date: May 25, 2017
Performance period: January 1, 2017 to December 31, 2019
2.60 year risk-free rate on grant date: 1.40%
December 31, 2016 closing price: $32.84
Closing stock price on the date of grant: $29.53
Annualized volatility (based on 2.60 year historical volatility as of the grant date): 15.7%
Annual dividend preceding the grant date: $0.80
The table below presents the PRSUs that will vest on a market condition:
| | | | | | |||||
| | Performance- | | | | |||||
| | Based Restricted | | Monte Carlo | ||||||
| | Stock Units | | Valuation of | ||||||
| | Based on a | | the Company's | ||||||
|
|
|
|
|
|
| Market Condition |
| Stock | |
|
| Performance- |
|
|
| |||||
|
| Based Restricted |
| Monte Carlo | ||||||
|
| Stock Units |
| Valuation of | ||||||
|
| Based on a |
| the Company's | ||||||
|
| Market Condition |
| Stock | ||||||
Nonvested at December 31, 2016 |
| — |
| $ | — | |||||
Unvested at December 31, 2023 |
| 11,245 | | $ | 22.31 | |||||
Granted |
| 2,881 |
|
| 24.44 |
| — | | | — |
Vested |
| — |
|
| — |
| — | |
| — |
Forfeited |
| — |
|
| — |
| 3,199 | |
| 26.00 |
Nonvested at September 30, 2017 |
| 2,881 |
| $ | 24.44 | |||||
Unvested at March 31, 2024 |
| 8,046 | | $ | 20.85 | |||||
| | | | | | |||||
Unvested at December 31, 2022 |
| 10,889 | | $ | 24.04 | |||||
Granted |
| — | | | — | |||||
Vested |
| — | |
| — | |||||
Forfeited |
| 4,087 | |
| 22.16 | |||||
Unvested at March 31, 2023 |
| 6,802 | | $ | 25.16 |
As of September 30, 2017,March 31, 2024, the Company had $41,000$50,000 of unrecognized compensation costs related to the PRSUs that are based on a market condition. The market value of PRSUs that will vest on a market condition is determined by a Monte Carlo valuation of the Company’s stock as of the grant date. Performance will be measured over a three-year performance period and will be cliff vested. The market condition is measured quarterly by comparing the Company’s three-year average total stock return to a peer group of other banks. The Company’s percentile ranking in the peer group determines how many PRSUs will vest.
22
(12)(13) Earnings Per Share
Holders of unvested restricted stock receive nonforfeitableaccrue dividends at the same rate as common shareholders and they both share equally in undistributed earnings. Unvested restricted stock awards that are time-based contain nonforfeitable rights to dividends or dividend equivalents and are considered to be participating securities in the earnings per share computation using the two-class method. Under the two-class method, earnings are allocated to common shareholders and participating securities according to their respective rights to earnings. Unvested restricted stock awards that vest based on performance or market conditions are not considered to be participating securities in the earnings per share calculation because accrued dividends on shares that do not vest are forfeited.
The table below presents the information used to compute basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | |||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
|
|
| ||||||||||||
|
| September 30, |
| September 30, |
|
| March 31, |
|
| | ||||||||||||
(Dollars in thousands, except per share data) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2024 |
| 2023 |
|
|
| ||||||
Net income |
| $ | 4,173 |
| $ | 4,164 |
| $ | 12,795 |
| $ | 11,985 |
| |||||||||
Net (loss) income | | $ | (482) | | $ | 2,316 | | | | |||||||||||||
Income allocated to participating securities |
|
| (10) |
|
| (47) |
|
| (15) |
|
| (136) |
| | | (1) | | | (19) | | | |
Net income available to common shareholders |
| $ | 4,163 |
| $ | 4,117 |
| $ | 12,780 |
| $ | 11,849 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net (loss) income available to common shareholders | | $ | (483) | | $ | 2,297 | | | | |||||||||||||
| | | | | | | | | | |||||||||||||
Weighted-average number of shares used in: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
Basic earnings per share |
|
| 9,280,018 |
|
| 9,102,837 |
|
| 9,250,537 |
|
| 9,065,892 |
| |
| 8,588,137 | |
| 8,774,634 | | | |
Dilutive common stock equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
Stock options and restricted stock units |
|
| 241,183 |
|
| 222,669 |
|
| 285,338 |
|
| 214,368 |
| |
| 42,582 | |
| 32,110 | | | |
Diluted earnings per share |
|
| 9,521,201 |
|
| 9,325,506 |
|
| 9,535,875 |
|
| 9,280,260 |
| |
| 8,630,719 | |
| 8,806,744 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income per common share, basic |
| $ | 0.45 |
| $ | 0.45 |
| $ | 1.38 |
| $ | 1.31 |
| |||||||||
Net income per common share, diluted |
| $ | 0.44 |
| $ | 0.44 |
| $ | 1.34 |
| $ | 1.28 |
| |||||||||
| | | | | | | | | | |||||||||||||
Net (loss) income per common share, basic | | $ | (0.06) | | $ | 0.26 | | | | |||||||||||||
Net (loss) income per common share, diluted | | $ | (0.06) | | $ | 0.26 | | | |
23
(13)(14) Accumulated Other Comprehensive Income and Loss
The table below presents the changes in the components of accumulated other comprehensive income and loss, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
| Noncredit |
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| Related |
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| Loss on |
|
|
|
|
|
|
| |||||||||||
| | | | | | | | | | | |||||||||||||
|
| Unfunded |
| Trust |
| Unrealized |
|
|
|
|
| Unfunded |
| Unrealized |
|
|
|
| |||||
|
| Pension |
| Preferred |
| Loss on |
|
|
|
|
| Pension |
| Loss/(Gain) on |
|
|
|
| |||||
(Dollars in thousands) |
| Liability |
| Securities |
| Securities |
| Total |
|
| Liability |
| Securities |
| Total |
| |||||||
Three months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Three months ended March 31, 2024 | | | | | | | | | | | |||||||||||||
Balances at beginning of period | | $ | 4,466 | | $ | 1,755 | | $ | 6,221 | | |||||||||||||
Other comprehensive loss, net of taxes | |
| — | |
| 396 | |
| 396 | | |||||||||||||
Net current period other comprehensive loss | |
| — | |
| 396 | |
| 396 | | |||||||||||||
Balances at end of period | | $ | 4,466 | | $ | 2,151 | | $ | 6,617 | | |||||||||||||
| | | | | | | | | | | |||||||||||||
Three months ended March 31, 2023 | | | | | | | | | | | |||||||||||||
Balances at beginning of period |
| $ | 5,284 |
| $ | — |
| $ | 45 |
| $ | 5,329 |
| | $ | 5,746 | | $ | 1,998 | | $ | 7,744 | |
Other comprehensive income, net of taxes |
|
| — |
|
| — |
|
| (12) |
|
| (12) |
| | | — | | | (337) | | | (337) | |
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
Net current period other comprehensive income |
|
| — |
|
| — |
|
| (12) |
|
| (12) |
| |
| — | |
| (337) | |
| (337) | |
Balances at end of period |
| $ | 5,284 |
| $ | — |
| $ | 33 |
| $ | 5,317 |
| | $ | 5,746 | | $ | 1,661 | | $ | 7,407 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Three months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances at beginning of period |
| $ | 5,065 |
| $ | 101 |
| $ | 39 |
| $ | 5,205 |
| ||||||||||
Other comprehensive income, net of taxes |
|
| — |
|
| (45) |
|
| (4) |
|
| (49) |
| ||||||||||
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
Net current period other comprehensive income |
|
| — |
|
| (45) |
|
| (4) |
|
| (49) |
| ||||||||||
Balances at end of period |
| $ | 5,065 |
| $ | 56 |
| $ | 35 |
| $ | 5,156 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Nine months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances at beginning of period |
| $ | 5,284 |
| $ | — |
| $ | 32 |
| $ | 5,316 |
| ||||||||||
Other comprehensive loss, net of taxes |
|
| — |
|
| — |
|
| 1 |
|
| 1 |
| ||||||||||
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
Net current period other comprehensive loss |
|
| — |
|
| — |
|
| 1 |
|
| 1 |
| ||||||||||
Balances at end of period |
| $ | 5,284 |
| $ | — |
| $ | 33 |
| $ | 5,317 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Nine months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances at beginning of period |
| $ | 5,044 |
| $ | 147 |
| $ | 45 |
| $ | 5,236 |
| ||||||||||
Other comprehensive loss (income), net of taxes |
|
| 21 |
|
| (91) |
|
| (10) |
|
| (80) |
| ||||||||||
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
Net current period other comprehensive loss (income) |
|
| 21 |
|
| (91) |
|
| (10) |
|
| (80) |
| ||||||||||
Balances at end of period |
| $ | 5,065 |
| $ | 56 |
| $ | 35 |
| $ | 5,156 |
|
The table below presents the tax effect on each component of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| ||||||||||||||
|
| Pretax |
|
|
|
| After Tax |
| Pretax |
|
|
|
| After Tax |
| ||||
(Dollars in thousands) |
| Amount |
| Tax |
| Amount |
| Amount |
| Tax |
| Amount |
| ||||||
Unfunded pension liability |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Noncredit related loss on trust preferred securities |
|
| — |
|
| — |
|
| — |
|
| (74) |
|
| 29 |
|
| (45) |
|
Unrealized loss on securities |
|
| (21) |
|
| 9 |
|
| (12) |
|
| (7) |
|
| 3 |
|
| (4) |
|
Total |
| $ | (21) |
| $ | 9 |
| $ | (12) |
| $ | (81) |
| $ | 32 |
| $ | (49) |
|
| | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended March 31, |
| ||||||||||||||||
|
| 2024 |
| 2023 |
| ||||||||||||||
|
| Pretax |
|
|
|
| After Tax |
| Pretax |
|
|
|
| After Tax |
| ||||
(Dollars in thousands) |
| Amount |
| Tax |
| Amount |
| Amount |
| Tax |
| Amount |
| ||||||
Unrealized loss (gain) on securities | | $ | 540 | | $ | (144) | | $ | 396 | | $ | (459) | | $ | 122 | | $ | (337) | |
Total | | $ | 540 | | $ | (144) | | $ | 396 | | $ | (459) | | $ | 122 | | $ | (337) | |
(15) Revenue Recognition
The Company’s contracts with customers are generally short term in nature, with cycles of one year or less. These can range from an immediate term for services such as wire transfers, foreign currency exchanges, and cashier’s check purchases, to several days for services such as processing annuity and mutual fund sales. Some contracts may be of an ongoing nature, such as providing deposit account services, including ATM access, check processing, account analysis, and check ordering. However, provision of an assessable service and payment for such service is usually concurrent or closely timed. Contracts related to financial instruments, such as loans, investments, and debt, are excluded from the scope of this reporting requirement.
After analyzing the Company’s revenue sources, including the amount of revenue received, the timing of services rendered, and the timing of payment for these services, the Company has determined that the rendering of services and the payment for such services are generally closely matched. Any differences are not material to the Company’s Consolidated Financial Statements. Accordingly, the Company generally records income when payment for services is received.
24
Revenue from contracts with customers is reported in service and other fees in other noninterest income in the Consolidated Statements of Operations. The table below reconciles the revenue from contracts with customers and other revenue reported in those line items:
| | | | | | | | | |
|
| Service and |
| | |
| | | |
(Dollars in thousands) |
| Other Fees |
| Other |
| Total | |||
Three months ended March 31, 2024 | | | | | | | | | |
Revenue from contracts with customers | | $ | 240 | | $ | 40 | | $ | 280 |
Other revenue | | | 33 | | | 34 | | | 67 |
Total | | $ | 273 | | $ | 74 | | $ | 347 |
| | | | | | | | | |
Three months ended March 31, 2023 | | | | | | | | | |
Revenue from contracts with customers | | $ | 275 | | $ | 42 | | $ | 317 |
Other revenue | | | 35 | | | 33 | | | 68 |
Total | | $ | 310 | | $ | 75 | | $ | 385 |
(16) Leases
The table below presents lease costs and other information for the periods indicated:
| | | | | | | |
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| ||
Lease costs: | | | | | | | |
Operating lease costs | | $ | 666 | | $ | 705 | |
Short-term lease costs | |
| 163 | |
| 104 | |
Variable lease costs | |
| 43 | |
| 43 | |
Total lease costs | | $ | 872 | | $ | 852 | |
| | | | | | | |
Cash paid for amounts included in measurement of lease liabilities | | $ | 195 | | $ | 769 | |
ROU assets obtained in exchange for new operating lease liabilities | | $ | 404 | | $ | 118 | |
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| ||||||||||||||
|
| Pretax |
|
|
|
| After Tax |
| Pretax |
|
|
|
| After Tax |
| ||||
(Dollars in thousands) |
| Amount |
| Tax |
| Amount |
| Amount |
| Tax |
| Amount |
| ||||||
Unfunded pension liability |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 21 |
| $ | 21 |
|
Noncredit related loss on trust preferred securities |
|
| — |
|
| — |
|
| — |
|
| (150) |
|
| 59 |
|
| (91) |
|
Unrealized loss on securities |
|
| 1 |
|
| — |
|
| 1 |
|
| (17) |
|
| 7 |
|
| (10) |
|
Total |
| $ | 1 |
| $ | — |
| $ | 1 |
| $ | (167) |
| $ | 87 |
| $ | (80) |
|
Future minimum rental commitments under noncancellable operating leases are as follows:
| | | |
| | March 31, | |
(Dollars in thousands) |
| 2024 | |
2024 | | $ | 2,625 |
2025 | |
| 2,228 |
2026 | |
| 2,086 |
2027 | |
| 2,001 |
2028 | |
| 1,709 |
Thereafter | |
| 8,910 |
Total | | | 19,559 |
| | | |
Less present value discount | | | (1,962) |
Present value of leases | | $ | 17,597 |
The table below presents additional lease-related information:
| | | | | | | | | |
| | March 31, | | | March 31, | | | ||
|
| 2024 |
| | 2023 |
| | ||
Weighted-average remaining lease term (years) | |
| 9.76 | | |
| 8.80 | | |
Weighted-average discount rate | | | 2.14 | % | | | 2.09 | % | |
(14)
(17) Fair Value of Financial Instruments
In accordance with the Fair Value Measurements and Disclosures topic of the FASB ASC, the Company groups its financial assets and liabilities valuedmeasured or disclosed at fair value into three levels based on the markets in which the financial assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:
|
|
|
In accordance with the Fair Value Measurements and Disclosures topic, the Company bases its fair values on the price that it would expect to receive if an asset were sold or the price that it would expect to pay to transfer a liability in an orderly transaction between market participants at the measurement date. Also as required, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when developing fair value measurements.
The Company uses fair value measurements to determine fair value disclosures. Investment securities heldavailable for sale and derivatives are recorded at fair value on a recurring basis. From time to time, the Company may be required to record other financial assets at fair value on a nonrecurring basis, such as loans held for sale, impairedindividually evaluated loans and investments, and mortgage servicing assets. These nonrecurring fair value adjustments typically involve application of the lower of cost or fair value accounting or write-downs of individual assets.
Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable. The carrying amount approximates fair value because of the short maturity of these instruments.
Investment Securities. Securities Available for Sale. The estimated fair values of mortgage-backed securities issued by U.S. government-sponsored mortgage-backed securitiesenterprises are considered Level 2 inputs because the valuation for investment securities utilized pricing models that varied based on asset class and included trade, bid, and other observable market information.
The trust preferred securities represent investments in a pool of debt obligations issued primarily by holding companies for Federal Deposit Insurance Corporation-insured financial institutions. The trust preferred securities market is considered to be inactive as only six transactions have occurred over the past 69 months in the same tranche of securities we own and no new issues of pooled trust preferred securities have occurred since 2007. The fair value of our trust preferred securities was determined using a discounted cash flow model. Our model used a discount rate equal to three-month LIBOR plus 20.00%.
2526
The discounted cash flow analysis includes a review of all issuers within the pool. The fair value of the trust preferred securities are classified as Level 3 inputs because they are based on discounted cash flow models.
FHLB Stock. FHLB stock, which is redeemable for cash at par value, is reported at its par value.
FRB Stock. FRB stock, which is redeemable for cash at par value, is reported at its par value.
Loans. The fair value of loans is estimated by discounting the future cash flows, including estimated prepayments, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of loans is not based on the concept of exit price.
Loans Held for Sale. The fair value of loans held for sale is determined based on the prices quoted in the secondary market for similar loans.
Deposits. The fair value of checking and Super NOW savings accounts, passbook accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows using the rates currently offered for deposits with similar remaining maturities.
Advances From the FHLB and Securities Sold Under Agreements to Repurchase. Fair value is estimated by discounting future cash flows using the rates currently offered to the Company for debt with similar remaining maturities.
Interest Rate Contracts. The Company may enter into interest rate lock commitments with borrowers on loans intended to be sold. To manage interest rate risk on the lock commitments, the Company may also enter into forward loan sale commitments. The interest rate lock commitments and forward loan sale commitments are treated as derivatives and are recorded at their fair value determined by referring to prices quoted in the secondary market for similar contracts. The fair value inputs are considered Level 2 inputs. Interest rate contracts that are classified as assets are included with prepaid expenses and other assets on the consolidated balance sheetConsolidated Balance Sheet while interest rate contracts that are classified as liabilities are included with accounts payable and accrued expenses.
26
The estimated fair values of the Company’s financial instruments are as follows:
| | | | | | | | | | | | | | | | |
| | Carrying | | | | | Fair Value Measurements Using |
| ||||||||
(Dollars in thousands) |
| Amount |
| Fair Value | | Level 1 | | Level 2 | | Level 3 |
| |||||
March 31, 2024 | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 90,059 | | $ | 90,059 | | $ | 90,059 | | $ | — | | $ | — | |
Investment securities available for sale | | | 19,483 | | | 19,483 | | | — | | | 19,483 | | | — | |
Investment securities held to maturity | |
| 677,578 | | | 547,290 | | | — | | | 547,290 | | | — | |
Loans receivable, net | |
| 1,309,712 | | | 1,095,737 | | | — | | | — | | | 1,095,737 | |
FHLB stock | |
| 12,232 | | | 12,232 | | | — | | | 12,232 | | | — | |
FRB stock | | | 3,182 | | | 3,182 | | | — | | | 3,182 | | | — | |
Accrued interest receivable | |
| 6,281 | | | 6,281 | | | 158 | | | 1,472 | | | 4,651 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Deposits | |
| 1,600,148 | | | 1,596,514 | | | — | | | 1,072,875 | | | 523,639 | |
Advances from the Federal Home Loan Bank | |
| 242,000 | | | 238,033 | | | — | | | 238,033 | | | — | |
Advances from the Federal Reserve Bank | | | 50,000 | | | 49,815 | | | — | | | 49,815 | | | — | |
Securities sold under agreements to repurchase | |
| 10,000 | | | 9,755 | | | — | | | 9,755 | | | — | |
Accrued interest payable | |
| 1,285 | | | 1,285 | | | — | | | 537 | | | 748 | |
| | | | | | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 126,659 | | $ | 126,659 | | $ | 126,659 | | $ | — | | $ | — | |
Investment securities available for sale | | | 20,171 | | | 20,171 | | | — | | | 20,171 | | | — | |
Investment securities held to maturity | |
| 685,728 | | | 568,128 | | | — | | | 568,128 | | | — | |
Loans receivable, net | |
| 1,303,431 | | | 1,120,704 | | | — | | | — | | | 1,120,704 | |
FHLB stock | |
| 12,192 | | | 12,192 | | | — | | | 12,192 | | | — | |
FRB stock | | | 3,180 | | | 3,180 | | | — | | | 3,180 | | | — | |
Accrued interest receivable | |
| 6,105 | | | 6,105 | | | 79 | | | 1,441 | | | 4,585 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Deposits | |
| 1,636,604 | | | 1,633,164 | | | — | | | 1,104,171 | | | 528,993 | |
Advances from the Federal Home Loan Bank | |
| 242,000 | | | 238,380 | | | — | | | 238,380 | | | — | |
Advances from the Federal Reserve Bank | | | 50,000 | | | 50,049 | | | — | | | 50,049 | | | — | |
Securities sold under agreements to repurchase | |
| 10,000 | | | 9,700 | | | — | | | 9,700 | | | — | |
Accrued interest payable | |
| 1,183 | | | 1,183 | | | — | | | 157 | | | 1,026 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying |
|
|
|
| Fair Value Measurements Using |
| ||||||||
(Dollars in thousands) |
| Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| |||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 38,385 |
| $ | 38,385 |
| $ | 38,385 |
| $ | — |
| $ | — |
|
Investment securities available for sale |
|
| 2,910 |
|
| 2,910 |
|
| — |
|
| 2,910 |
|
| — |
|
Investment securities held to maturity |
|
| 411,657 |
|
| 415,112 |
|
| — |
|
| 414,187 |
|
| 925 |
|
Loans held for sale |
|
| 495 |
|
| 499 |
|
| — |
|
| 499 |
|
| — |
|
Loans receivable, net |
|
| 1,434,753 |
|
| 1,455,571 |
|
| — |
|
| — |
|
| 1,455,571 |
|
FHLB stock |
|
| 5,013 |
|
| 5,013 |
|
| — |
|
| 5,013 |
|
| — |
|
FRB stock |
|
| 3,103 |
|
| 3,103 |
|
| — |
|
| 3,103 |
|
| — |
|
Accrued interest receivable |
|
| 4,985 |
|
| 4,985 |
|
| 2 |
|
| 1,111 |
|
| 3,872 |
|
Interest rate contracts |
|
| 2 |
|
| 2 |
|
| — |
|
| 2 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 1,571,367 |
|
| 1,570,959 |
|
| — |
|
| 1,272,086 |
|
| 298,873 |
|
Advances from the Federal Home Loan Bank |
|
| 69,000 |
|
| 68,933 |
|
| — |
|
| 68,933 |
|
| — |
|
Securities sold under agreements to repurchase |
|
| 55,000 |
|
| 54,986 |
|
| — |
|
| 54,986 |
|
| — |
|
Accrued interest payable |
|
| 412 |
|
| 412 |
|
| — |
|
| 174 |
|
| 238 |
|
Interest rate contracts |
|
| 2 |
|
| 2 |
|
| — |
|
| 2 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 61,273 |
| $ | 61,273 |
| $ | 61,273 |
| $ | — |
| $ | — |
|
Investment securities held to maturity |
|
| 407,656 |
|
| 407,922 |
|
| — |
|
| 406,759 |
|
| 1,163 |
|
Loans held for sale |
|
| 1,601 |
|
| 1,601 |
|
| — |
|
| 1,601 |
|
| — |
|
Loans receivable, net |
|
| 1,335,987 |
|
| 1,352,137 |
|
| — |
|
| — |
|
| 1,352,137 |
|
FHLB stock |
|
| 4,945 |
|
| 4,945 |
|
| — |
|
| 4,945 |
|
| — |
|
FRB stock |
|
| 3,095 |
|
| 3,095 |
|
| — |
|
| 3,095 |
|
| — |
|
Accrued interest receivable |
|
| 4,732 |
|
| 4,732 |
|
| 10 |
|
| 1,064 |
|
| 3,658 |
|
Interest rate contracts |
|
| 104 |
|
| 104 |
|
| — |
|
| 104 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 1,493,200 |
|
| 1,493,094 |
|
| — |
|
| 1,257,157 |
|
| 235,937 |
|
Advances from the Federal Home Loan Bank |
|
| 69,000 |
|
| 69,068 |
|
| — |
|
| 69,068 |
|
| — |
|
Securities sold under agreements to repurchase |
|
| 55,000 |
|
| 55,123 |
|
| — |
|
| 55,123 |
|
| — |
|
Accrued interest payable |
|
| 218 |
|
| 218 |
|
| — |
|
| 172 |
|
| 46 |
|
Interest rate contracts |
|
| 104 |
|
| 104 |
|
| — |
|
| 104 |
|
| — |
|
27
At September 30, 2017March 31, 2024 and December 31, 2016,2023, neither the commitment fees received on commitments to extend credit nor the fair value thereof was material to the consolidated financial statementsConsolidated Financial Statements of the Company.
27
The table below presents the balance of assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts — assets |
| $ | — |
| $ | 2 |
| $ | — |
| $ | 2 |
|
Interest rate contracts — liabilities |
|
| — |
|
| (2) |
|
| — |
|
| (2) |
|
Available-for-sale investments |
|
| — |
|
| 2,910 |
|
| — |
|
| 2,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts — assets |
| $ | — |
| $ | 104 |
| $ | — |
| $ | 104 |
|
Interest rate contracts — liabilities |
|
| — |
|
| (104) |
|
| — |
|
| (104) |
|
| | | | | | | | | | | | | |
(Dollars in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
March 31, 2024 | | | | | | | | | | | | | |
Investment securities available for sale | | $ | — | | $ | 19,483 | | $ | — | | $ | 19,483 | |
| | | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | | |
Investment securities available for sale | | $ | — | | $ | 20,171 | | $ | — | | $ | 20,171 | |
The fair value of interest rate contracts was determined by referring to prices quoted in the secondary market for similar contracts. The fair value of available-for-sale investments was determined using quoted market prices.
The table below presents the balance ofThere were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2017 andMarch 31, 2024 or December 31, 20162023.
(18) Subsequent Events
Hope Bancorp Merger Agreement
On April 26, 2024, Hope Bancorp, Inc., a Delaware corporation (“Hope Bancorp”), and Territorial Bancorp Inc., a Maryland corporation (“Territorial Bancorp”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Under the related gains and lossesterms of the merger agreement, Territorial Bancorp shareholders will receive a fixed exchange ratio of 0.8048 share of Hope Bancorp common stock in exchange for the nine months ended September 30, 2017 and the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| Adjustment Date |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
|
| Total Gains (Losses) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
| 3/31/2017 |
| $ | — |
| $ | 87 |
| $ | — |
| $ | 87 |
| $ | (11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities |
| 9/30/2016 |
| $ | — |
| $ | — |
| $ | 1,066 |
| $ | 1,066 |
| $ | 242 |
|
Mortgage servicing assets |
| 6/30/2016 |
|
| — |
|
| — |
|
| 341 |
|
| 341 |
|
| (49) |
|
Impaired loans |
| 8/31/2016 |
|
| — |
|
| 64 |
|
| — |
|
| 64 |
|
| (33) |
|
Loans held for sale |
| 12/31/2016 |
|
| — |
|
| 1,601 |
|
| — |
|
| 1,601 |
|
| (1) |
|
The fair valueeach share of trust preferred securities is determined usingTerritorial Bancorp common stock they own, in a discounted cash flow model. The assumptions used in the discounted cash flow model are discussed above. Gains and losses on trust preferred securities that are credit related are included in net other-than-temporary impairment losses in the consolidated statements of income. Gains and losses on trust preferred securities that are not credit related are included in other comprehensive income in the consolidated statements of comprehensive income. Mortgage servicing assets are100% stock-for-stock transaction valued using a discounted cash flow model. Assumptions used in the model include mortgage prepayment speeds, discount rates and cost of servicing. Losses on mortgage servicing assets are included in service fees on loan and deposit accounts in the consolidated statements of income. The fair value of impaired loans is determined using the value of collateral less estimated selling costs. Gains and losses on impaired loans are included in the provision for loan losses in the consolidated statements of income. The fair value of loans held for sale is determinedat approximately $78.6 million, based on the prices quoted in the secondary marketclosing price of Hope Bancorp’s common stock on April 26, 2024. The transaction is intended to qualify as a tax-free reorganization for similar loans. Losses on loans held for sale are included in gain on sale of loans in the consolidated statements of income.Territorial Bancorp shareholders.
28
The table below presentstransaction is subject to regulatory approvals, the significant unobservable inputs for Level 3 nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unobservable |
|
|
|
|
(Dollars in thousands) |
| Fair Value |
| Valuation Technique |
| Input |
| Value |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities |
| $ | 1,066 |
| Discounted cash flow |
| Discount rate |
|
| Three-month LIBOR plus 20.00% |
|
Mortgage servicing assets |
|
| 341 |
| Discounted cash flow |
| Discount rate |
|
| 10.50% |
|
|
|
|
|
|
|
| Prepayment speed (PSA) |
|
| 158.4 - 203.5 |
|
|
|
|
|
|
|
| Annual cost to service (per loan) |
| $ | 65 |
|
(15) Subsequent Events
On October 25, 2017, the Board of Directorsapproval of Territorial Bancorp Inc. declared a quarterly cash dividendshareholders, and the satisfaction of $0.20 per share of common stock. The dividend is expected to be paid on November 22, 2017 to stockholders of record as of November 8, 2017.other customary closing conditions.
29
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSISANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” “continue”“continue,” and words of similar meaning. These forward-looking statements include, but are not limited to:
● |
| statements of our goals, intentions, and expectations; |
● |
| statements regarding our business plans, prospects, growth, and operating strategies; |
● |
| statements regarding the asset quality of our loan and investment portfolios; and |
● |
| estimates of our risks and future costs and benefits. |
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. You should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.
28
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
● |
|
● | general economic conditions, |
● |
| competition among depository and other financial institutions; |
● |
| inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; |
● |
| adverse changes in the securities or credit markets; |
● |
| changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
● |
|
● | our ability to enter new markets successfully and capitalize on growth opportunities; |
● |
|
● | our ability to successfully integrate acquired entities, if any; |
● |
| changes in consumer demand, spending, borrowing, and savings habits; |
● |
| changes in accounting and auditing policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission |
● |
| changes in our organization, compensation, and benefit plans; |
● |
|
|
● |
|
|
30
● |
|
|
|
|
| our ability to retain |
● | cyber attacks, computer viruses, and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems; |
● | technological changes that may be more difficult or expensive than expected; |
● | the ability of third-party providers to perform their obligations to us; |
● | the ability of the U.S. Government to manage federal debt limits; |
● | the effects of any federal government shutdown; |
● | risks, uncertainties and other factors relating to a pandemic, including the length of time that the pandemic continues, the imposition of any restrictions on individual or business activities; the severity and duration |
29
of the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, including the effects of any vaccine mandate; and the inability of employees to work due to illness, quarantine, or government mandates; |
● |
|
● | the quality and composition of our investment portfolio; |
● | changes in market and other conditions that would affect our ability to repurchase our common stock; |
● | changes in our financial condition or results of operations that reduce capital available to pay dividends; |
● |
|
● | the effects of social and governance change and societal and investor sentiment and governmental responses to social and governance matters; |
● | the effects of domestic and international hostilities, including terrorism; and |
● | changes in the financial condition or future prospects of issuers of securities that we own. |
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Overview
We have historically operated as a traditional thrift institution. The significant majority of our assets consist of long-term, fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit accounts,inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank and the Federal Reserve Bank, proceeds from securities sold under agreements to repurchase, and Federal Home Loan Bank advances.proceeds from loan and security sales. As a result, we may be vulnerable to increases in interest rates, as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets.assets, as occurred in 2023.
We have continued our focus on originating one- to four-family residential real estate loans. Our emphasis on conservative loan underwriting has resulted in continued low levels of nonperforming assets. Our nonperforming assets, which can include nonaccrual loans, and real estate owned, totaled $3.3$2.2 million, or 0.17%0.10% of total assets at September 30, 2017,March 31, 2024 compared to $4.6$2.3 million, or 0.24%0.10% of total assets at December 31, 2016. Our nonperforming loans2023. We recorded credit loss provisions of $19,000 and a reversal of credit loss experience has enabled us to maintain a relatively low allowance for loan losses in relation to other peer institutions and correspondingly resulted in low levelsprovisions of provisions for loan losses. Our provisions for loan losses were $2,000 and $219,000 for$100,000 during the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, respectively.
Other than our loans for The credit loss provisions in the construction of one- to four-family residential homes, we do not offer “interest only” mortgage loans (where the borrower pays only interest for an initial period, after which the loan converts to a fully amortizing loan) on one- to four-family residential properties. We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as nonconforming loans having less than full documentation). We also do not own any private label mortgage-backed securities that are collateralized by Alt-A, low or no documentation or subprime mortgage loans.
We sold $20.3 million and $38.6 million of fixed-rate mortgage loans for the ninethree months ended September 30, 2017March 31, 2024 was primarily due to an increase in our consumer and 2016, respectively. Long-term, fixed-rate borrowingscommercial loan portfolios, an increase in forecasted charge-offs in the consumer loan portfolio, and a decrease in forecasted prepayments in the commercial loan portfolio. The reversal of credit loss provisions in the three months ended March 31, 2023 was primarily due to an improvement in economic conditions.
Federal Home Loan Bank and Federal Reserve Bank advances remained constant at September 30, 2017$242.0 million and 2016.$50.0 million, respectively, for the three months ended March 31, 2024. Federal Home Loan Bank advances increased by $105.0 million to $246.0 million during the three months ended March 31, 2023. The increase in FHLB advances was used to enhance our liquidity and to fund deposit withdrawals. We had no Federal Reserve Bank advances at March 31, 2023. Securities sold under agreements to repurchase remained constant at $10.0 million during the three months ended March 31, 2024 and 2023.
Our investments in mortgage-backed securities have been issued by Freddie Mac or Fannie Mae, which are U.S. government-sponsored enterprises, or Ginnie Mae, which is a U.S. government agency. These agenciesentities guarantee the payment of principal and interest on our mortgage-backed securities. We do not own any preferred stock issued by Fannie Mae or Freddie Mac. As of September 30, 2017March 31, 2024 and December 31, 2016,2023, we
30
owned $414.0$697.1 million and $406.5$705.9 million, respectively, of mortgage-backed securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae. We did not record a provision for credit losses on investment securities during the three months ended March 31, 2024 or 2023 as all our securities were issued either by U.S. government agencies or U.S. government-sponsored enterprises.
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in Territorial Bancorp Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016.2023.
31
Comparison of Financial Condition at September 30, 2017March 31, 2024 and December 31, 20162023
Assets.At September 30, 2017,March 31, 2024, our total assets were $1.962$2.2 billion, an increasea decrease of $84.9$43.6 million, or 4.5%2.0%, from $1.878 billion at December 31, 2016.2023. The increasedecrease in assets was primarily the result ofdue to a $97.7 million increase in total loans receivable and a $6.9 million increase in investment securities, which was partially offset by a $22.9$36.6 million decrease in cash and cash equivalents.equivalents and an $8.8 million decrease in total investment securities which were partially offset by a $1.1 million increase in total loans.
Cash and Cash Equivalents. Cash and cash equivalents were $38.4$90.1 million at September 30, 2017,March 31, 2024, a decrease of $22.9$36.6 million, or 28.9%, since December 31, 2016.2023. The decrease in cash and cash equivalents was primarily caused by a $97.7$36.5 million increasedecrease in total loans, which was offset by a $78.2 million increase in deposits.deposits, as described below.
Loans. Total loans including $495,000 of loans held for sale, were $1.435$1.3 billion at September 30, 2017,March 31, 2024, or 73.1%59.5% of total assets. During the ninethree months ended September 30, 2017,March 31, 2024, the loan portfolio including loans held for sale, increased by $97.7$1.1 million, or 7.3%0.1%. The increase in the loan portfolio primarily occurred as the productionorigination of new one- to four-family residential loans exceeded principal repayments and loan sales.repayments.
Securities. At September 30, 2017, ourTotal investment securities, portfolio totaled $414.6including $19.5 million of investment securities available for sale, were $697.1 million at March 31, 2024, or 21.1%31.8% of total assets. During the ninethree months ended September 30, 2017,March 31, 2024, the investment securities portfolio increaseddecreased by $6.9$8.8 million, or 1.7%1.3%. The increasedecrease in the investment securities portfolio isbalance was primarily due to purchases of new securities exceeding principal repayments and sales. During the nine months ended September 30, 2017, $52.0 million and $2.9 million of securities were purchased for the held-to-maturity and available-for-sale portfolios, respectively.
repayments. At September 30, 2017,March 31, 2024, none of the underlying collateral for the securities consisted of subprime or Alt-A (traditionally defined as nonconforming loans having less than full documentation) loans.
At September 30, 2017, we owned a trust preferred security with an amortized cost of $592,000. This security represents an investment in a pool of debt obligations primarily issued by holding companies of Federal Deposit Insurance Corporation-insured financial institutions.
The trust preferred securities market is considered to be inactive as only six transactions have occurred over the past 69 months in the same tranche of securities we own and no new issuances of pooled trust preferred securities have occurred since 2007. We use a discounted cash flow model to determine whether this security is other-than-temporarily impaired. The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates, estimated deferral and default rates on collateral, and estimated cash flows.
Based on our review, our investment in the trust preferred security did not incur additional impairment during the nine months ended September 30, 2017.
It is reasonably possible that the fair value of the trust preferred security could decline in the near term if the overall economy and the financial condition of some of the issuers deteriorate further and the liquidity of this security remains low. As a result, there is a risk that our remaining cost basis of $592,000 on the trust preferred security could be credit-related other-than-temporarily impaired in the near term. The impairment, if any, could be material to our consolidated statements of income.
Deposits. Deposits were $1.571$1.6 billion at September 30, 2017, an increaseMarch 31, 2024, a decrease of $78.2$36.5 million, or 5.2%2.2%, since December 31, 2016.2023. The growthdecrease in deposits was primarily due to an increasedecreases of $63.2$22.0 million in passbook savings accounts, $8.7 million in checking accounts, $5.2 million in certificates of deposit, and an increase of $13.2$1.1 million in savings accounts during the nine months ended September 30, 2017.money market accounts. The increasedecrease in certificates of deposit isdeposits occurred primarily due to a $34.7as customers sought higher interest rates than what we offer.
Borrowings. Total borrowings were $302.0 million, increase in public depositsat March 31, 2024 and $14.6 million in new accounts at our new Keeaumoku branch, which was opened in April 2017.
Borrowings.December 31, 2023. Our borrowings consist of advances from the Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) and funds borrowed under securities sold under agreements to repurchase. At September 30, 2017 and December 31, 2016, total borrowings remained constant at $124.0 million. We have not required any additional borrowings to fund our operations. Instead, we have primarily funded our operations with additional deposits, proceeds from loan sales and principal repayments on loans and mortgage-backed securities.
32
Stockholders’ Equity. Total stockholders’ equity increased to $237.3was $250.0 million at September 30, 2017March 31, 2024, a decrease of $1.1 million, or 0.4%, from $229.8$251.1 million at December 31, 2016.2023. The increasedecrease in stockholders’ equity occurred as ourwas primarily due to the net income forloss, an increase in the year exceededunrealized loss on available-for-sale securities, and dividends paid to stockholders.declared.
Average BalancesBalance and Yields
The following tables settable sets forth the average balance sheets, averagesheet, yields and rates, and certain other information at and for the periodsperiod indicated. No tax-equivalent yield adjustments were made, as the effect thereof waswe did not material.hold any tax-free investments. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances and are included with accrual loans in the tables. However, no interest income was attributed to nonaccrual loans. The yields set forth below include the effect of net deferred costs, discounts, and premiums that are amortized or accreted to interest income.income of $37,000 and $64,000 for the three months ended March 31, 2024 and 2023, respectively.
3331
| | | | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended March 31, |
| | |||||||||||||||
|
| 2024 |
| | 2023 |
| | ||||||||||||
|
| Average |
|
|
|
|
|
| | Average |
|
|
|
|
|
|
| ||
|
| Outstanding |
|
|
|
| Yield/Rate |
| | Outstanding |
|
|
|
| Yield/Rate |
| | ||
|
| Balance |
| Interest |
| (1) |
| | Balance |
| Interest |
| (1) |
| | ||||
| | (Dollars in thousands) |
| | |||||||||||||||
Interest-earning assets: | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | |
Real estate loans: | | | | | | | | | | | | | | | | | | | |
First mortgage: | | | | | | | | | | | | | | | | | | | |
One- to four-family residential (2) | | $ | 1,271,731 | | $ | 11,635 |
| 3.66 | % | | $ | 1,250,060 | | $ | 10,948 |
| 3.50 | % | |
Multi-family residential | |
| 5,690 | |
| 67 |
| 4.71 | | |
| 4,766 | |
| 61 |
| 5.12 | | |
Construction, commercial, and other | |
| 12,040 | |
| 139 |
| 4.62 | | |
| 24,041 | |
| 251 |
| 4.18 | | |
Home equity loans and lines of credit | |
| 8,135 | |
| 132 |
| 6.49 | | |
| 6,279 | |
| 104 |
| 6.63 | | |
Other loans | |
| 8,222 | |
| 92 |
| 4.48 | | |
| 8,439 | |
| 90 |
| 4.27 | | |
Total loans | |
| 1,305,818 | |
| 12,065 |
| 3.70 | | |
| 1,293,585 | |
| 11,454 |
| 3.54 | | |
Investment securities: | | | | | | | | | | | | | | | | | | | |
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises (2) | |
| 702,434 | |
| 4,313 |
| 2.46 | | |
| 740,350 | |
| 4,540 |
| 2.45 | | |
Total securities | |
| 702,434 | |
| 4,313 |
| 2.46 | | |
| 740,350 | |
| 4,540 |
| 2.45 | | |
Other investments | |
| 120,104 | |
| 1,613 |
| 5.37 | | |
| 67,217 | |
| 727 |
| 4.33 | | |
Total interest-earning assets | |
| 2,128,356 | |
| 17,991 |
| 3.38 | | |
| 2,101,152 | |
| 16,721 |
| 3.18 | | |
Non-interest-earning assets | |
| 88,794 | | | | | | | |
| 88,719 | | | | | | | |
Total assets | | $ | 2,217,150 | | | | | | | | $ | 2,189,871 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | |
Savings accounts | | $ | 732,471 | | | 1,315 |
| 0.72 | % | | $ | 875,870 | |
| 346 |
| 0.16 | % | |
Certificates of deposit | |
| 525,835 | |
| 5,449 |
| 4.15 | | |
| 438,593 | |
| 3,168 |
| 2.89 | | |
Money market accounts | |
| 2,873 | |
| 1 |
| 0.14 | | |
| 5,273 | |
| 1 |
| 0.08 | | |
Checking and Super NOW accounts | |
| 284,517 | |
| 14 |
| 0.02 | | |
| 296,024 | |
| 15 |
| 0.02 | | |
Total interest-bearing deposits | |
| 1,545,696 | |
| 6,779 |
| 1.75 | | |
| 1,615,760 | |
| 3,530 |
| 0.87 | | |
Federal Home Loan Bank advances | |
| 242,000 | |
| 1,810 |
| 2.99 | | |
| 192,333 | |
| 1,054 |
| 2.19 | | |
Federal Reserve Bank advances | | | 50,000 | | | 595 |
| 4.76 | | | | — | | | — | | — | | |
Securities sold under agreements to repurchase | |
| 10,000 | |
| 46 |
| 1.84 | | |
| 10,000 | |
| 46 |
| 1.84 | | |
Total interest-bearing liabilities | |
| 1,847,696 | |
| 9,230 |
| 2.00 | | |
| 1,818,093 | |
| 4,630 |
| 1.02 | | |
Non-interest-bearing liabilities | |
| 116,895 | | | | | | | |
| 116,103 | | | | | | | |
Total liabilities | |
| 1,964,591 | | | | | | | |
| 1,934,196 | | | | | | | |
Stockholders’ equity | |
| 252,559 | | | | | | | |
| 255,675 | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 2,217,150 | | | | | | | | $ | 2,189,871 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 8,761 | | | | | | | | $ | 12,091 | | | | |
Net interest rate spread (3) | | | | | | |
| 1.38 | % | | | | | | |
| 2.16 | % | |
Net interest-earning assets (4) | | $ | 280,660 | | | | | | | | $ | 283,059 | | | | | | | |
Net interest margin (5) | | | | | | |
| 1.65 | % | | | | | | |
| 2.30 | % | |
Interest-earning assets to interest-bearing liabilities | |
| 115.19 | % | | | | | | |
| 115.57 | % | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended September 30, |
|
| ||||||||||||||
|
| 2017 |
| 2016 |
|
| ||||||||||||
|
| Average |
|
|
|
|
|
| Average |
|
|
|
|
|
|
| ||
|
| Outstanding |
|
|
|
| Yield/Rate |
| Outstanding |
|
|
|
| Yield/Rate |
|
| ||
|
| Balance |
| Interest |
| (1) |
| Balance |
| Interest |
| (1) |
|
| ||||
|
| (Dollars in thousands) |
|
| ||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential (2) |
| $ | 1,371,678 |
| $ | 13,248 |
| 3.86 | % | $ | 1,226,054 |
| $ | 12,433 |
| 4.06 | % |
|
Multi-family residential |
|
| 9,363 |
|
| 111 |
| 4.74 |
|
| 9,656 |
|
| 114 |
| 4.72 |
|
|
Construction, commercial and other |
|
| 22,046 |
|
| 250 |
| 4.54 |
|
| 25,189 |
|
| 278 |
| 4.41 |
|
|
Home equity loans and lines of credit |
|
| 13,607 |
|
| 162 |
| 4.76 |
|
| 15,428 |
|
| 169 |
| 4.38 |
|
|
Other loans |
|
| 4,984 |
|
| 66 |
| 5.30 |
|
| 4,297 |
|
| 58 |
| 5.40 |
|
|
Total loans |
|
| 1,421,678 |
|
| 13,837 |
| 3.89 |
|
| 1,280,624 |
|
| 13,052 |
| 4.08 |
|
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored mortgage-backed securities (2) |
|
| 407,547 |
|
| 3,169 |
| 3.11 |
|
| 444,514 |
|
| 3,496 |
| 3.15 |
|
|
Trust preferred securities |
|
| 745 |
|
| — |
| — |
|
| 992 |
|
| — |
| — |
|
|
Total securities |
|
| 408,292 |
|
| 3,169 |
| 3.10 |
|
| 445,506 |
|
| 3,496 |
| 3.14 |
|
|
Other |
|
| 47,138 |
|
| 171 |
| 1.45 |
|
| 54,658 |
|
| 121 |
| 0.89 |
|
|
Total interest-earning assets |
|
| 1,877,108 |
|
| 17,177 |
| 3.66 |
|
| 1,780,788 |
|
| 16,669 |
| 3.74 |
|
|
Non-interest-earning assets |
|
| 70,268 |
|
|
|
|
|
|
| 68,176 |
|
|
|
|
|
|
|
Total assets |
| $ | 1,947,376 |
|
|
|
|
|
| $ | 1,848,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
| $ | 1,036,734 |
|
| 1,146 |
| 0.44 | % | $ | 1,022,748 |
|
| 1,050 |
| 0.41 | % |
|
Certificates of deposit |
|
| 278,375 |
|
| 871 |
| 1.25 |
|
| 213,409 |
|
| 423 |
| 0.79 |
|
|
Money market accounts |
|
| 5,719 |
|
| 6 |
| 0.42 |
|
| 2,651 |
|
| 2 |
| 0.30 |
|
|
Checking and Super NOW accounts |
|
| 179,670 |
|
| 10 |
| 0.02 |
|
| 171,624 |
|
| 10 |
| 0.02 |
|
|
Total interest-bearing deposits |
|
| 1,500,498 |
|
| 2,033 |
| 0.54 |
|
| 1,410,432 |
|
| 1,485 |
| 0.42 |
|
|
Federal Home Loan Bank advances |
|
| 70,262 |
|
| 264 |
| 1.50 |
|
| 69,033 |
|
| 259 |
| 1.50 |
|
|
Securities sold under agreements to repurchase |
|
| 55,000 |
|
| 221 |
| 1.61 |
|
| 55,000 |
|
| 220 |
| 1.60 |
|
|
Total interest-bearing liabilities |
|
| 1,625,760 |
|
| 2,518 |
| 0.62 |
|
| 1,534,465 |
|
| 1,964 |
| 0.51 |
|
|
Non-interest-bearing liabilities |
|
| 84,177 |
|
|
|
|
|
|
| 85,962 |
|
|
|
|
|
|
|
Total liabilities |
|
| 1,709,937 |
|
|
|
|
|
|
| 1,620,427 |
|
|
|
|
|
|
|
Stockholders’ equity |
|
| 237,439 |
|
|
|
|
|
|
| 228,537 |
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
| $ | 1,947,376 |
|
|
|
|
|
| $ | 1,848,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
| $ | 14,659 |
|
|
|
|
|
| $ | 14,705 |
|
|
|
|
Net interest rate spread (3) |
|
|
|
|
|
|
| 3.04 | % |
|
|
|
|
|
| 3.23 | % |
|
Net interest-earning assets (4) |
| $ | 251,347 |
|
|
|
|
|
| $ | 246,323 |
|
|
|
|
|
|
|
Net interest margin (5) |
|
|
|
|
|
|
| 3.12 | % |
|
|
|
|
|
| 3.30 | % |
|
Interest-earning assets to interest-bearing liabilities |
|
| 115.46 | % |
|
|
|
|
|
| 116.05 | % |
|
|
|
|
|
|
(1) |
|
|
(2) |
| Average balance includes loans or investments held to maturity and available for sale, as applicable. |
(3) |
| Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(4) |
| Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
(5) |
| Net interest margin represents net interest income divided by average total interest-earning assets. |
3432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, |
|
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| ||||||||||||
|
| Average |
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
| ||
|
| Outstanding |
|
|
|
| Yield/Rate |
|
| Outstanding |
|
|
|
| Yield/Rate |
|
| ||
|
| Balance |
| Interest |
| (1) |
|
| Balance |
| Interest |
| (1) |
|
| ||||
|
| (Dollars in thousands) |
|
| |||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential (2) |
| $ | 1,336,843 |
| $ | 39,079 |
| 3.90 | % |
| $ | 1,189,741 |
| $ | 36,240 |
| 4.06 | % |
|
Multi-family residential |
|
| 9,432 |
|
| 333 |
| 4.71 |
|
|
| 9,721 |
|
| 342 |
| 4.69 |
|
|
Construction, commercial and other |
|
| 22,666 |
|
| 772 |
| 4.54 |
|
|
| 23,306 |
|
| 795 |
| 4.55 |
|
|
Home equity loans and lines of credit |
|
| 14,219 |
|
| 499 |
| 4.68 |
|
|
| 15,580 |
|
| 504 |
| 4.31 |
|
|
Other loans |
|
| 4,968 |
|
| 194 |
| 5.21 |
|
|
| 4,424 |
|
| 179 |
| 5.39 |
|
|
Total loans |
|
| 1,388,128 |
|
| 40,877 |
| 3.93 |
|
|
| 1,242,772 |
|
| 38,060 |
| 4.08 |
|
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored mortgage-backed securities (2) |
|
| 400,323 |
|
| 9,328 |
| 3.11 |
|
|
| 466,516 |
|
| 11,121 |
| 3.18 |
|
|
Trust preferred securities |
|
| 967 |
|
| — |
| — |
|
|
| 943 |
|
| — |
| — |
|
|
Total securities |
|
| 401,290 |
|
| 9,328 |
| 3.10 |
|
|
| 467,459 |
|
| 11,121 |
| 3.17 |
|
|
Other |
|
| 58,094 |
|
| 530 |
| 1.22 |
|
|
| 67,627 |
|
| 411 |
| 0.81 |
|
|
Total interest-earning assets |
|
| 1,847,512 |
|
| 50,735 |
| 3.66 |
|
|
| 1,777,858 |
|
| 49,592 |
| 3.72 |
|
|
Non-interest-earning assets |
|
| 69,385 |
|
|
|
|
|
|
|
| 68,463 |
|
|
|
|
|
|
|
Total assets |
| $ | 1,916,897 |
|
|
|
|
|
|
| $ | 1,846,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
| $ | 1,031,650 |
|
| 3,261 |
| 0.42 | % |
| $ | 1,015,992 |
|
| 3,107 |
| 0.41 | % |
|
Certificates of deposit |
|
| 257,074 |
|
| 2,153 |
| 1.12 |
|
|
| 225,221 |
|
| 1,222 |
| 0.72 |
|
|
Money market accounts |
|
| 4,936 |
|
| 16 |
| 0.43 |
|
|
| 2,204 |
|
| 6 |
| 0.36 |
|
|
Checking and Super NOW accounts |
|
| 180,134 |
|
| 29 |
| 0.02 |
|
|
| 170,449 |
|
| 28 |
| 0.02 |
|
|
Total interest-bearing deposits |
|
| 1,473,794 |
|
| 5,459 |
| 0.49 |
|
|
| 1,413,866 |
|
| 4,363 |
| 0.41 |
|
|
Federal Home Loan Bank advances |
|
| 69,900 |
|
| 779 |
| 1.49 |
|
|
| 69,011 |
|
| 772 |
| 1.49 |
|
|
Securities sold under agreements to repurchase |
|
| 55,000 |
|
| 654 |
| 1.59 |
|
|
| 55,000 |
|
| 656 |
| 1.59 |
|
|
Total interest-bearing liabilities |
|
| 1,598,694 |
|
| 6,892 |
| 0.57 |
|
|
| 1,537,877 |
|
| 5,791 |
| 0.50 |
|
|
Non-interest-bearing liabilities |
|
| 82,926 |
|
|
|
|
|
|
|
| 82,714 |
|
|
|
|
|
|
|
Total liabilities |
|
| 1,681,620 |
|
|
|
|
|
|
|
| 1,620,591 |
|
|
|
|
|
|
|
Stockholders’ equity |
|
| 235,277 |
|
|
|
|
|
|
|
| 225,730 |
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
| $ | 1,916,897 |
|
|
|
|
|
|
| $ | 1,846,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
| $ | 43,843 |
|
|
|
|
|
|
| $ | 43,801 |
|
|
|
|
Net interest rate spread (3) |
|
|
|
|
|
|
| 3.09 | % |
|
|
|
|
|
|
| 3.22 | % |
|
Net interest-earning assets (4) |
| $ | 248,818 |
|
|
|
|
|
|
| $ | 239,981 |
|
|
|
|
|
|
|
Net interest margin (5) |
|
|
|
|
|
|
| 3.16 | % |
|
|
|
|
|
|
| 3.28 | % |
|
Interest-earning assets to interest-bearing liabilities |
|
| 115.56 | % |
|
|
|
|
|
|
| 115.60 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Comparison of Operating Results for the Three Months Ended September 30, 2017March 31, 2024 and 20162023
General. NetWe had a net loss of $482,000 for the three months ended March 31, 2024, a $2.8 million, or 120.8%, decrease in earnings compared to net income increased by $9,000, or 0.2%, to $4.2of $2.3 million for the three months ended September 30, 2017.March 31, 2023. The increasedecrease in net incomeearnings was primarily due to a $212,000$3.3 million decrease in net interest income, taxesa $447,000 increase in non-interest expense, and a $53,000 decrease$119,000 increase in loancredit loss provisions. These decreases in earnings were partially offset by a $116,000 increase in noninterest expense, a $94,000$1.1 million decrease in noninterest income and a $46,000 decrease in net interest income.taxes.
Net Interest Income. Net interest income decreased by $46,000,$3.3 million, or 0.3%27.5%, to $14.7$8.8 million for the three months ended September 30, 2017.March 31, 2024 from $12.1 million for the three months ended March 31, 2023. Interest expense increased by $4.6 million or 99.4%, due to a 98 basis point increase in the cost of average interest-bearing liabilities and a $29.6 million increase in the average balance of interest-bearing liabilities. Interest income increased by $508,000,$1.3 million, or 3.0%7.6%, due to a $96.320 basis point increase in the yield on average interest-earning assets and a $27.2 million increase in the average balance of interest-earning assets. This was offset by an eight basis point decrease inSince the yieldsignificant majority of average interest-earning assets. Interest expense increased by $554,000, or 28.2%, due to a $91.3 million increase inour loan and securities portfolios have fixed interest rates, the average balance ofrates on these assets have not repriced as quickly as our interest-bearing liabilities and an 11 basis point increase in the costduring this period of average interest-bearing liabilities.rising market interest rates. The net interest rate spread and net interest margin were 3.04%1.38% and 3.12%1.65%, respectively, for the three months ended September 30, 2017,March 31, 2024, compared to 3.23%2.16% and 3.30%2.30% respectively, for the three months ended September 30, 2016.March 31, 2023. The decreases in the net interest rate spread and in the net interest margin are attributedattributable to an eight basis point decrease in the yield of average interest-earning assets and an 1198 basis point increase in the cost of average interest-bearing liabilities. The decreaseliabilities, which was partially offset by the 20 basis point increase in the yield on average interest-earning assets was primarily due to the principal repayments on higher-yielding mortgage loans and securities and the addition of new mortgage loans and securities with lower rates. The increase in the cost of average interest-bearing liabilities was primarily due to a 46 basis point increase in the cost of certificates of deposit, primarily public deposits, as new certificates of deposit with higher interest rates were opened.assets.
Interest Income. Interest income increased by $508,000,$1.3 million, or 3.0%7.6%, to $17.2$18.0 million for the three months ended September 30, 2017March 31, 2024 from $16.7 million for the three months ended September 30, 2016.March 31, 2023. Interest income on other investments increased by $886,000, or 121.9%, to $1.6 million for the three months ended March 31, 2024 from $727,000 for the three months ended March 31, 2023. The increase in interest income on other investments was primarily due to an increase in the interest earned on our cash balances at the FRB. Our average cash balance at the FRB increased by $51.0 million from $53.5 million during the three months ended March 31, 2023, to $104.5 million during the three months ended March 31, 2024. In addition, the yield earned increased from 4.07% for the three months ended March 31, 2023 to 5.02% for the three months ended March 31, 2024. Interest income on loans increased by $785,000,$611,000, or 6.0%5.3%, to $13.8$12.1 million for the three months ended September 30, 2017March 31, 2024 from $13.1$11.5 million for the three months ended September 30, 2016.March 31, 2023. The increase in interest income on loans occurred because of a 16 basis points, or 4.5%, increase in the yield primarily becausedue to an increase in market rates and a $12.2 million, or 0.9% increase in the average balance of loans grew by $141.1 million, or 11.0%,which occurred as new loan originations exceeded loan repayments and loan sales. The increase in interest income that occurred because of growth in the loan portfolio wasrepayments. These increases were partially offset by a 19 basis point declinedecrease in the average loan yield to 3.89% for the three months ended September 30, 2017 from 4.08% for the three months ended September 30, 2016. The decline in the average yield on loans occurred because of repayments on higher-yielding loans and additions of new loans with lower yields to the loan portfolio. Interestinterest income on investment securities decreased by $327,000,of $227,000, or 9.4%5.0%, to $3.2$4.3 million for the three months ended September 30, 2017March 31, 2024 from $4.5 million for the three months ended March 31, 2023. The decrease in interest income on securities occurred primarily because of a $37.9 million, or 5.1%, decrease in the average balance of securities due to security repayments.
Interest Expense. Interest expense increased by $4.6 million, or 99.4%, to $9.2 million for the three months ended March 31, 2024 from $4.6 million for the three months ended March 31, 2023. Interest expense on interest-bearing deposits increased by $3.2 million, or 92.0%, to $6.8 million for the three months ended March 31, 2024 from $3.5 million for the three months ended September 30, 2016. The decrease in interest income on securities occurred because of a $37.2 million decrease in the average securities balance and a four basis point decrease in the average securities yield. The decline in the average balance and yield on securities occurred because repayments exceeded the amount of securities purchased and new securities added to the portfolio had lower yields.
Interest Expense. Interest expense increased by $554,000, or 28.2%, to $2.5 million for the three months ended September 30, 2017. Interest expense on deposits increased by $548,000, or 36.9%, from $1.5 million for the three months ended September 30, 2016 to $2.0 million for the three months ended September 30, 2017.March 31, 2023. The increase in interest expense on interest-bearing deposits was due to an increase in the average outstanding balance and the average rate paid on deposits. The average outstanding balance of deposits increased by $90.1 million, or 6.4%, to $1.500 billion for the three months ended September 30, 2017 compared to $1.410 billion for the three months ended September 30, 2016. The growth in deposits is primarily due to a $65.0126 basis point increase in the rate paid on certificates of deposit and a $87.2 million increase in the average balance of certificates of deposit and a $25.1 million increase in the average balance of savings, money market and checking accounts.deposit. The average rate paid on deposits increased by 12 basis points from 0.42% for the three months ended September 30, 2016 to 0.54% for the three months ended September 30, 2017, primarily due to a 46 basis point increase in certificate of deposit rates. The increase in the average rate paid on certificates of deposit is primarily dueincreased to higher interest rates paid on newly opened public deposits. Because our public deposits carry higher rates than retail deposits, any increase in current interest rates or in the balance of public deposits may continue to increase our interest expense.
Provision for Loan Losses. We recorded provisions for loan losses of $54,000 and $107,0004.15% for the three months ended September 30, 2017 and September 30, 2016, respectively. The provisions for loan losses included net charge-offs of $12,000 and $21,000March 31, 2024, from 2.89% for the three months ended September 30, 2017 and 2016, respectively.March 31, 2023. Interest expense on savings accounts increased by $969,000, or 280.1%, to $1.3 million for the three months ended March 31, 2024 from $346,000 for the three months ended March 31, 2023. The increase in interest expense on savings accounts occurred primarily because of a 56 basis point increase in the rate which was partially offset by a $143.4 million, or 16.4%, decrease in loanthe average balance of savings accounts. The increase in the rates on certificates of deposit and savings accounts were primarily due to increases in market interest rates. The changes in the average balance of savings accounts and certificates of deposit occurred primarily as customers transferred funds from savings accounts with relatively low interest rates to our certificates of deposit with higher interest rates or withdrew their deposits and sought higher interest rates elsewhere.Interest expense on FHLB advances rose by $756,000, or 71.7%, from $1.1 million for the three months ended March 31, 2023 to $1.8 million for the three months ended March 31, 2024. The increase in interest expense occurred because of an 80 basis point increase in the cost of FHLB advances and a $49.7 million, or
33
25.8%, increase in the average FHLB advance balance. The increase in the cost and the average balance of FHLB advances was due to additional FHLB advances obtained in 2023 to enhance our liquidity and to fund the decrease in deposits. Interest expense on advances from the FRB was $595,000 for the three months ended March 31, 2024 due to a $50.0 million advance from the FRB Bank Term Funding Program that was obtained to enhance our liquidity and to fund the decrease in deposits. There were no advances from the FRB during the three months ended March 31, 2023.
Provision for Credit Losses. We recorded credit loss provisions of $19,000 and a reversal of credit loss provisions of $100,000 during the three months ended March 31, 2024 and 2023, respectively. The credit loss provisions in the three months ended September 30, 2017 occurred as a result of improving credit quality ofMarch 31, 2024 was primarily due to an increase in our consumer and commercial loan portfolios, an increase in forecasted charge-offs in the
36
consumer loan portfolio, and a reductiondecrease in forecasted prepayments in the commercial loan losses.portfolio. The reversal of the credit loss provisions in the three months ended March 31, 2023 was primarily due to an improvement in economic conditions. The provisions recorded resulted in ratios of the allowance for loancredit losses to total loans of 0.17%0.39% and 0.18%0.40% at September 30, 2017March 31, 2024 and 2016,2023, respectively. Nonaccrual loans totaled $3.3$2.2 million at September 30, 2017,March 31, 2024, or 0.23%0.17% of total loans at that date, compared to $4.8$2.4 million of nonaccrual loans at September 30, 2016,March 31, 2023, or 0.37%0.18% of total loans at that date. Nonaccrual loans as of September 30, 2017March 31, 2024 and 20162023 consisted primarily of one- to four-family residential real estate loans. ToThe allowance at March 31, 2024 and 2023 reflects management’s best estimate of losses over the bestlife of loans in our knowledge, we have provided for all losses that are both probable and reasonable to estimate at September 30, 2017 and 2016.portfolio in accordance with the CECL approach. For additional information see noteNote (6), “Loans Receivable and Allowance for LoanCredit Losses” in our Notes to Consolidated Financial Statements.
Noninterest Income. The following table summarizes changes in noninterest income between the three months ended September 30, 2017March 31, 2024 and 2016.2023.
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| Three Months Ended |
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| Change |
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| 2023 |
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| 2016 |
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| (Dollars in thousands) |
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Service fees on loan and deposit accounts |
| $ | 427 |
| $ | 493 |
| $ | (66) |
| (13.4) | % |
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| | | | | | (Dollars in thousands) | | | | | ||||||||||||||||||||||||||||
Service and other fees | | $ | 273 | | $ | 310 | | $ | (37) |
| (11.9) | % | | |||||||||||||||||||||||||
Income on bank-owned life insurance |
|
| 228 |
|
| 240 |
|
| (12) |
| (5.0) | % |
| |
| 246 | |
| 203 | |
| 43 |
| 21.2 | % | | ||||||||||||
Gain on sale of investment securities |
|
| 150 |
|
| 60 |
|
| 90 |
| 150.0 | % |
| |||||||||||||||||||||||||
Gain on sale of loans |
|
| 28 |
|
| 114 |
|
| (86) |
| (75.4) | % |
| |||||||||||||||||||||||||
Net gain on sale of loans | |
| — | |
| 1 | |
| (1) |
| (100.0) | % | | |||||||||||||||||||||||||
Other |
|
| 76 |
|
| 96 |
|
| (20) |
| (20.8) | % |
| |
| 74 | |
| 75 | |
| (1) |
| (1.3) | % | | ||||||||||||
Total |
| $ | 909 |
| $ | 1,003 |
| $ | (94) |
| (9.4) | % |
| | $ | 593 | | $ | 589 | | $ | 4 |
| 0.7 | % | |
Noninterest income decreased by $94,000 for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. During the three months ended September 30, 2017 and 2016, $3.7 million and $14.5 million, respectively, of mortgage loans held for sale were sold and gains of $28,000 and $114,000, respectively, were recognized. The decrease in service fees on loan and deposit accounts was primarily due to a decrease in fee income from brokering loans to other financial institutions. The decrease in other income was primarily due to a decrease in commissions earned on annuity and mutual fund sales. These decreases were partially offset by an increase in the gain on sale of investment securities. During the three months ended September 30, 2017 and 2016, we received proceeds of $2.4 million and $801,000, respectively, from the sale of $2.2 million and $741,000, respectively, of held-to maturity mortgage-backed securities, resulting in gross realized gains of $150,000 and $60,000, respectively. The sale of these mortgage-backed securities, for which we had already collected a substantial portion of the original purchased principal (at least 85%), was in accordance with the Investments — Debt and Equity Securities topic of the FASB ASC and does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity.
Noninterest Expense. The following table summarizes changes in noninterest expense between the three months ended September 30, 2017March 31, 2024 and 2016.2023.
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| 2016 |
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| | | | | | (Dollars in thousands) | | | | | ||||||||||||||||
Salaries and employee benefits |
| $ | 5,201 |
| $ | 5,265 |
| $ | (64) |
| (1.2) | % |
| | $ | 4,962 | | $ | 5,404 | | $ | (442) |
| (8.2) | % | |
Occupancy |
|
| 1,529 |
|
| 1,432 |
|
| 97 |
| 6.8 | % |
| |
| 1,738 | |
| 1,623 | |
| 115 |
| 7.1 | % | |
Equipment |
|
| 882 |
|
| 865 |
|
| 17 |
| 2.0 | % |
| |
| 1,323 | |
| 1,312 | |
| 11 |
| 0.8 | % | |
Federal deposit insurance premiums |
|
| 152 |
|
| 144 |
|
| 8 |
| 5.6 | % |
| |
| 496 | |
| 245 | |
| 251 |
| 102.4 | % | |
Other general and administrative expenses |
|
| 997 |
|
| 939 |
|
| 58 |
| 6.2 | % |
| |
| 1,541 | |
| 1,029 | |
| 512 |
| 49.8 | % | |
Total |
| $ | 8,761 |
| $ | 8,645 |
| $ | 116 |
| 1.3 | % |
| | $ | 10,060 | | $ | 9,613 | | $ | 447 |
| 4.6 | % | |
Noninterest expense increased by $116,000$447,000 for the three months ended September 30, 2017March 31, 2024 compared to the three months ended September 30, 2016. Occupancy expense increased by $97,000 to $1.5 million for the three months ended September 20, 2017 from $1.4 million for the three months ended September 30, 2016 primarily due to an increase in repairs and maintenance and rent expense.March 31, 2023. The increase in other general and administrative expenses was mainlyprimarily due to increases in marketinglegal expenses and other miscellaneousprofessional fees. The increase in federal deposit insurance premiums was primarily due to an increase in the Federal Deposit Insurance Corporation (FDIC) premium rate retroactive to October 1, 2023. The increase in occupancy expense was primarily due to increases in office building repairs and maintenance expenses. These increases were partially offset by aThe decrease in salaries
37
and employee benefits expense. Salaries and employee benefits expense decreasedwas primarily due to a decrease in share-based compensation. The reduction in the cost of share-based compensation plans occurred as the majority of awards under our 2010 equity incentive plan became fully vested in 2016. The decrease in share-based compensation expense and employee stock ownership plan expenses which was partially offset by an annual salary increase and a decrease in the capitalized costequity incentive plan expenses.
34
Income Tax (Benefit) Expense. Income taxes were $2.6 million The income tax benefit was $243,000 for the three months ended September 30, 2017,March 31, 2024, reflecting an effective tax benefit rate of 33.5%, compared to income tax expense of $851,000 for the three months ended March 31, 2023, reflecting an effective tax rate of 38.2%, compared to $2.8 million for the three months ended September 30, 2016, reflecting an effective tax rate of 40.1%26.9%.
Income tax expense for the three months ending September 30, 2017 included a $150,000 tax benefit related to the exercise of stock options. Starting in 2017 a new accounting standard requires that any excess tax benefits resulting from the exercise of stock options be recognized in income tax expense. Prior to the adoption of the new standard, the excess tax benefits were recorded as additional paid-in-capital. The amount of tax benefits or deficiencies recognized in income tax expense depends on the number of options exercised and the difference in the stock prices at the exercise and grant dates.
Comparison of Operating Results for the Nine Months Ended September 30, 2017 and 2016
General. Net income increased by $810,000, or 6.8%, from $12.0 million for the nine months ended September 30, 2016 to $12.8 million for the nine months ended September 30, 2017. The increase in net income was due to a $470,000 decrease in noninterest expense, a $217,000 decrease in loan loss provisions, a $114,000 decrease in income taxes and a $42,000 increase in net interest income. These were partially offset by a $33,000 decrease in noninterest income.
Net Interest Income. Net interest income increased by $42,000, or 0.1%, to $43.8 million for the nine months ended September 30, 2017. Interest income increased by $1.1 million, or 2.3%, due to a $69.7 million increase in the average balance of interest-earning assets. This was offset by a six basis point decrease in the yield of average interest-earning assets. Interest expense increased by $1.1 million, or 19.0%, due to a $60.8 million increase in the average balance of interest-bearing liabilities and a seven basis point increase in the cost of average interest-bearing liabilities. The interest rate spread and net interest margin were 3.09% and 3.16% respectively, for the nine months ended September 30, 2017, compared to 3.22% and 3.28% respectively, for the nine months ended September 30, 2016. The decreases in the interest rate spread and in the net interest margin are attributed to a six basis point decrease in the yield of average interest-earning assets and a seven basis point increase in the cost of average interest-bearing liabilities. The decrease in the yield of average interest-earning assets was primarily due to the principal repayments on higher-yielding mortgage loans and securities and the addition of new mortgage loans and securities with lower rates. The increase in the cost of average interest-bearing liabilities was primarily due to a 40 basis point increase in the cost of certificates of deposit, primarily public deposits, as new certificates of deposit with higher interest rates were opened.
Interest Income. Interest income increased by $1.1 million, or 2.3%, to $50.7 million for the nine months ended September 30, 2017 from $49.6 million for the nine months ended September 30, 2016. Interest income on loans increased by $2.8 million, or 7.4%, to $40.9 million for the nine months ended September 30, 2017 from $38.1 million for the nine months ended September 30, 2016. The increase in interest income on loans occurred primarily because the average balance of loans grew by $145.4 million, or 11.7%, as new loan originations exceeded loan repayments and loan sales. The increase in interest income that occurred because of growth in the loan portfolio was partially offset by a 15 basis point decline in the average loan yield to 3.93% for the nine months ended September 30, 2017 from 4.08% for the nine months ended September 30, 2016. The decline in the average yield on loans occurred because of repayments on higher-yielding loans and additions of new loans with lower yields to the loan portfolio. Interest income on investment securities decreased by $1.8 million, or 16.1%, to $9.3 million for the nine months ended September 30, 2017 from $11.1 million for the nine months ended September 30, 2016. The decrease in interest income on securities occurred because of a $66.2 million decrease in the average securities balance and a seven basis point decrease in the average
38
securities yield. The decline in the average balance and yield on securities occurred because repayments exceeded the amount of securities purchased and new securities added to the portfolio had lower yields.
Interest Expense. Interest expense increased by $1.1 million, or 19.0%, to $6.9 million for the nine months ended September 30, 2017. Interest expense on deposits increased by $1.1 million, or 25.1%, from $4.4 million for the nine months ended September 30, 2016 to $5.5 million for the nine months ended September 30, 2017. The increase in interest expense on deposits was due to an increase in the average outstanding balance and the average rate paid on deposits. The average outstanding balance of deposits increased by $59.9 million, or 4.2%, to $1.474 billion for the nine months ended September 30, 2017 compared to $1.414 billion for the nine months ended September 30, 2016. The growth in deposits is primarily due to a $31.9 million increase in the average balance of certificates of deposit and a $28.1 million increase in the average balance of savings, money market and checking accounts. The average rate paid on deposits increased by eight basis points from 0.41% for the nine months ended September 30, 2016 to 0.49% for the nine months ended September 30, 2017, primarily due to a 40 basis point increase in certificate of deposit rates. The increase in the average rate paid on certificates of deposit is primarily due to higher interest rates paid on public deposits. Because our public deposits carry higher rates than retail deposits, any increase in current interest rates or in the balance of public deposits may continue to increase our interest expense.
Provision for Loan Losses. We recorded provisions for loan losses of $2,000 and $219,000 for the nine months ended September 30, 2017 and 2016, respectively. The provision for loan losses included net recoveries of $45,000 for the nine months ended September 30, 2017 and net charge-offs of $23,000 for the nine months ended September 30, 2016. The decrease in loan loss provisions in the nine months ended September 30, 2017 occurred as a result of improving credit quality of the loan portfolio and a reduction in loan losses. The provisions recorded resulted in ratios of the allowance for loan losses to total loans of 0.17% and 0.18% at September 30, 2017 and 2016, respectively. Nonaccrual loans totaled $3.3 million at September 30, 2017, or 0.23% of total loans at that date, compared to $4.8 million of nonaccrual loans at September 30, 2016, or 0.37% of total loans at that date. Nonaccrual loans as of September 30, 2017 and 2016 consisted primarily of one- to four-family residential real estate loans. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at September 30, 2017 and 2016. For additional information see note (6), “Loans Receivable and Allowance for Loan Losses” in our Notes to Consolidated Financial Statements.
Noninterest Income. The following table summarizes changes in noninterest income between the nine months ended September 30, 2017 and 2016.
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|
| Nine Months Ended |
|
|
|
|
|
|
| ||||
|
| September 30, |
| Change |
|
| |||||||
|
| 2017 |
| 2016 |
| $ Change |
| % Change |
| ||||
|
|
|
|
|
| (Dollars in thousands) |
|
|
|
| |||
Service fees on loan and deposit accounts |
| $ | 1,490 |
| $ | 1,422 |
| $ | 68 |
| 4.8 | % |
|
Income on bank-owned life insurance |
|
| 681 |
|
| 727 |
|
| (46) |
| (6.3) | % |
|
Gain on sale of investment securities |
|
| 431 |
|
| 250 |
|
| 181 |
| 72.4 | % |
|
Gain on sale of loans |
|
| 154 |
|
| 304 |
|
| (150) |
| (49.3) | % |
|
Other |
|
| 234 |
|
| 320 |
|
| (86) |
| (26.9) | % |
|
Total |
| $ | 2,990 |
| $ | 3,023 |
| $ | (33) |
| (1.1) | % |
|
Noninterest income decreased by $33,000 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. During the nine months ended September 30, 2017 and 2016, the Company sold $20.3 million and $38.6 million, respectively, of mortgage loans held for sale and recognized gains of $154,000 and $304,000, respectively. Other income decreased by $86,000 primarily due to a decrease in commissions earned on annuity and mututal fund sales. These decreases were partially offset by increases in the gain on sale of investment securities and in service fees on loan and deposit accounts. During the nine months ended September 30, 2017 and 2016, we received proceeds of $7.4 million and $3.9 million, respectively, from the sale of $7.0 million and $3.7 million, respectively, of held-to-maturity mortgage-backed securities, resulting in gross realized gains of $431,000 and $250,000, respectively. The sale of these mortgage-backed securities, for which we had already collected a substantial portion of
39
the original purchased principal (at least 85%), was in accordance with the Investments — Debt and Equity Securities topic of the FASB ASC and does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity. During the nine months ended September 30, 2017, service fees on loan and deposit accounts increased by $68,000, primarily due to incentives received on a new debit card agreement and a decrease in the amortization of premiums on loans sold. These were partially offset by decreases in return item fees and ATM fees.
Noninterest Expense. The following table summarizes changes in noninterest expense between the nine months ended September 30, 2017 and 2016.
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| Nine Months Ended |
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| ||||
|
| September 30, |
| Change |
|
| |||||||
|
| 2017 |
| 2016 |
| $ Change |
| % Change |
| ||||
|
|
|
|
|
| (Dollars in thousands) |
|
|
|
| |||
Salaries and employee benefits |
| $ | 15,254 |
| $ | 15,947 |
| $ | (693) |
| (4.3) | % |
|
Occupancy |
|
| 4,439 |
|
| 4,285 |
|
| 154 |
| 3.6 | % |
|
Equipment |
|
| 2,630 |
|
| 2,683 |
|
| (53) |
| (2.0) | % |
|
Federal deposit insurance premiums |
|
| 448 |
|
| 596 |
|
| (148) |
| (24.8) | % |
|
Other general and administrative expenses |
|
| 3,451 |
|
| 3,181 |
|
| 270 |
| 8.5 | % |
|
Total |
| $ | 26,222 |
| $ | 26,692 |
| $ | (470) |
| (1.8) | % |
|
Noninterest expense decreased by $470,000 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Salaries and employee benefits expense decreased by $693,000 primarily due to a decrease in share-based compensation. The reduction in the cost of share-based compensation plans occurred as the majority of awards under our 2010 equity incentive plan became fully vested in 2016. The decrease in share-based compensation expense was partially offset by an annual salary increase, an increase in ESOP plan expenses that occurred because of the Company’s higher stock price and a decrease in the capitalized cost of new loan originations. The decrease in the capitalized cost of new loan originations in 2017 occurred as we closed fewer loans during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Federal deposit insurance premiums declined because of a decrease in the insurance premium rate on deposits. These decreases were partially offset by increases in other general and administrative and occupancy expenses. The increase in other general and administrative expenses was mainly due to increases in marketing, audit, and other miscellaneous expenses. The increase in occupancy expense was due to an increase in rent expense and repairs and maintenance expenses.
Income Tax Expense. Income taxes were $7.8 million for the nine months ended September 30, 2017, reflecting an effective tax rate of 37.9%, compared to $7.9 million for the nine months ended September 30, 2016, reflecting an effective tax rate of 39.8%.
Income tax expense for the nine months ended September 30, 2017 included a $541,000 tax benefit related to the exercise of stock options. Starting in 2017 a new accounting standard requires that any excess tax benefits resulting from the exercise of stock options be recognized in income tax expense. Prior to the adoption of the new standard, the excess tax benefits were recorded as additional paid-in-capital. The amount of tax benefits or deficiencies recognized in income tax expense depends on the number of options exercised and the difference in the stock prices at the exercise and grant dates.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations. Our primary obligations include meeting the borrowing needs of our customers, fulfilling deposit withdrawals, interest payment on deposits, and repayment of borrowings. Our primary sources of funds consist of deposit inflows, cash balances at the Federal Reserve Bank,FRB, loan and security repayments, advances from the Federal Home Loan Bank,FHLB and FRB, securities sold under agreements to repurchase, and proceeds from loan sales and principal repayments on securities.security sales. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions, and competition. We have established an Asset/Liability Management Committee, consisting of our President and Chief Executive Officer, our
40
Vice Chairman and Co-Chief Operating Officer, our SeniorExecutive Vice President and Chief Financial Officer, our Executive Vice President of Finance, and our Vice President and Controller,Senior Treasury Analyst, which is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2017.March 31, 2024.
We regularly monitor and adjust our investments in liquid assets based upon our assessment of:
(i) |
| expected loan demand; |
(ii) |
| purchases and sales of investment securities; |
(iii) |
| expected deposit flows and borrowing maturities; |
(iv) |
| yields available on interest-earning deposits and securities; and |
(v) |
| the objectives of our asset/liability management program. |
Excess liquid assets are invested generally in interest-earning deposits or securities and may also be used to pay off short-term borrowings.
Our most liquid asset is cash. The amount of this asset is dependent on our operating, financing, lending, and investing activities during any given period. At September 30, 2017,March 31, 2024, our cash and cash equivalents totaled $38.4$90.1 million. On that date,If we had $55.0 million inrequire funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB and FRB, which provide an additional source of funds. We also utilize securities sold under agreements to repurchase outstanding and $69.0 million of Federal Home Loan Bank advances outstanding, withas another borrowing source. At March 31, 2024, we had the ability to borrow an additional $604.3$613.1 million and $163.5 million from the FHLB and FRB, respectively. In addition, we had the ability to borrow up to $125.1 million, using our unpledged securities as collateral, from the FRB or using securities sold under Federal Home Loan Bank advances.agreements to repurchase.
Our cash flows are derived from operating activities, investing activities, and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.
We had estimated uninsured deposits (in excess of the federal deposit insurance limit of $250,000) of $404.2 million, or 25.3% of total deposits as of March 31, 2024, compared to an estimated $419.4 million, or 25.6% of total deposits as of December 31, 2023. Our estimate is calculated on the same basis used for regulatory reporting. We have no deposits that are uninsured for any other reason.
35
At September 30, 2017,March 31, 2024, we had $30.8$1.7 million in loan commitments outstanding most of which were for fixed-rate loans and had $26.6$14.8 million in unused lines of credit to borrowers. Certificates of deposit due within one year at September 30, 2017of March 31, 2024 totaled $149.8$504.2 million, or 9.5%31.5% of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan and security sales, brokered deposits, securities sold under agreements to repurchase, and Federal Home Loan BankFHLB and FRB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2018. We believe, however, based on past experience that a significant portion of such deposits will remain with us.March 31, 2025. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities are originating loans and purchasing mortgage-backed securities. During the ninethree months ended September 30, 2017March 31, 2024 and 20162023, we originated $242.7$19.2 million and $280.7$21.2 million of loans, respectively andrespectively. During the three months ended March 31, 2023, we purchased $54.9 million and $2.4 millionsecurities with a face value of $6.8 million. We did not purchase any securities respectively. in the three months ended March 31, 2024.
Financing activities consist primarily of activity in deposit accounts, Federal Home Loan BankFHLB advances, FRB advances, securities sold under agreements to repurchase, stock repurchases, and dividend payments. We experienced a net increasesdecrease in deposits of $78.2 million and $19.4$36.5 million for the ninethree months ended September 30, 2017 and 2016, respectively.March 31, 2024. The decrease in deposits occurred primarily as customers sought higher interest rates than what we offer. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.
Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank, which provide an additional source of funds. Federal Home Loan Bank advances remained constant at $69.0 million at September 30, 2017 and 2016. We had the ability to borrow up to an additional $604.3 million and $577.9 million from the Federal Home Loan Bank as of September 30, 2017 At March 31, 2024 and December 31, 2016,2023, FHLB and FRB advances were $242.0 million and $50.0 million, respectively. We also utilize securities
41
sold under agreements to repurchase as another borrowing source. Securities sold under agreements to repurchase remained constant at $55.0 million at the nine months ended September 30, 2017 and 2016.
Territorial Bancorp Inc. is a separate legal entity from Territorial Savings Bank and must provide for its own liquidity to pay dividends, repurchase shares of its common stock, and for other corporate purposes. Territorial Bancorp Inc.’s primary source of liquidity is dividend payments from Territorial Savings Bank. The ability of Territorial Savings Bank to pay dividends to Territorial Bancorp Inc. is subject to regulatory requirements. At September 30, 2017,March 31, 2024, Territorial Bancorp Inc. (on an unconsolidated, stand-alone basis) had liquid assets of $24.4$17.5 million.
Territorial Savings Bank and the Company areis subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. Effective January 1, 2015, the well capitalized threshold for Tier 1 risk-based capital was increased from 6.0%Territorial Bancorp Inc. is not subject to 8.0% and a new capital standard, common equity tier 1 risk-based capital, was implemented with a 6.5% ratio requirement for a financial institution to be considered well capitalized. Additionally, effective January 1, 2015, consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions became applicable to savings and loan holding companies over $1.0 billion inbecause its total assets such as the Company. The capital requirements become fully-phased in on January 1, 2019.are less than $3.0 billion. At September 30, 2017,March 31, 2024, Territorial Savings Bank and the Company exceeded all of the fully-phasedfully phased in regulatory capital requirements and areis considered to be “well capitalized” under regulatory guidelines.
36
The tables below present the fully-phased in capital required to be considered “well-capitalized” and meet the regulatory capital conservation buffer requirement as a percentage of total and risk-weighted assets and the percentage and the total amount of capital maintained for Territorial Savings Bank and the Company at September 30, 2017March 31, 2024 and December 31, 2016:2023:
| | | | | | | | | |
(Dollars in thousands) |
| Required Ratio |
|
| Actual Amount |
| Actual Ratio |
| |
March 31, 2024: | | | | | | | | | |
Tier 1 Leverage Capital | | | | | | | | | |
Territorial Savings Bank |
| 5.00 | % | | $ | 239,001 | | 10.79 | % |
Territorial Bancorp Inc. |
| | | | $ | 256,634 | | 11.58 | % |
Common Equity Tier 1 Risk-Based Capital (1) | | | | | | | | | |
Territorial Savings Bank |
| 9.00 | % | | $ | 239,001 | | 26.34 | % |
Territorial Bancorp Inc. |
| | | | $ | 256,634 | | 28.28 | % |
Tier 1 Risk-Based Capital (1) | | | | | | | | | |
Territorial Savings Bank |
| 10.50 | % | | $ | 239,001 | | 26.34 | % |
Territorial Bancorp Inc. |
| | | | $ | 256,634 | | 28.28 | % |
Total Risk-Based Capital (1) | | | | | | | | | |
Territorial Savings Bank |
| 12.50 | % | | $ | 244,143 | | 26.91 | % |
Territorial Bancorp Inc. |
| | | | $ | 261,776 | | 28.84 | % |
| | | | | | | | | |
December 31, 2023: | | | | | | | | | |
Tier 1 Leverage Capital | | | | | | | | | |
Territorial Savings Bank |
| 5.00 | % | | $ | 238,972 | | 10.86 | % |
Territorial Bancorp Inc. |
| | | | $ | 257,307 | | 11.69 | % |
Common Equity Tier 1 Risk-Based Capital (1) | | | | | | | | | |
Territorial Savings Bank |
| 9.00 | % | | $ | 238,972 | | 26.31 | % |
Territorial Bancorp Inc. |
| | | | $ | 257,307 | | 28.33 | % |
Tier 1 Risk-Based Capital (1) | | | | | | | | | |
Territorial Savings Bank |
| 10.50 | % | | $ | 238,972 | | 26.31 | % |
Territorial Bancorp Inc. |
| | | | $ | 257,307 | | 28.33 | % |
Total Risk-Based Capital (1) | | | | | | | | | |
Territorial Savings Bank |
| 12.50 | % | | $ | 244,093 | | 26.87 | % |
Territorial Bancorp Inc. |
| | | | $ | 262,428 | | 28.89 | % |
42
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| Required Ratio |
|
| Actual Amount |
| Actual Ratio |
|
September 30, 2017: |
|
|
|
|
|
|
|
|
Tier 1 Leverage Capital |
|
|
|
|
|
|
|
|
Territorial Savings Bank |
| 5.00 | % | $ | 216,506 |
| 11.14 | % |
Territorial Bancorp Inc. |
| 5.00 | % | $ | 242,609 |
| 12.48 | % |
Common Equity Tier 1 Risk-Based Capital (1) |
|
|
|
|
|
|
|
|
Territorial Savings Bank |
| 9.00 | % | $ | 216,506 |
| 23.74 | % |
Territorial Bancorp Inc. |
| 9.00 | % | $ | 242,609 |
| 26.58 | % |
Tier 1 Risk-Based Capital (1) |
|
|
|
|
|
|
|
|
Territorial Savings Bank |
| 10.50 | % | $ | 216,506 |
| 23.74 | % |
Territorial Bancorp Inc. |
| 10.50 | % | $ | 242,609 |
| 26.58 | % |
Total Risk-Based Capital (1) |
|
|
|
|
|
|
|
|
Territorial Savings Bank |
| 12.50 | % | $ | 219,090 |
| 24.02 | % |
Territorial Bancorp Inc. |
| 12.50 | % | $ | 245,193 |
| 26.86 | % |
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
|
Tier 1 Leverage Capital |
|
|
|
|
|
|
|
|
Territorial Savings Bank (2) |
| 9.00 | % | $ | 219,365 |
| 11.76 | % |
Territorial Bancorp Inc. |
| 5.00 | % | $ | 235,102 |
| 12.60 | % |
Common Equity Tier 1 Risk-Based Capital (1) |
|
|
|
|
|
|
|
|
Territorial Savings Bank |
| 9.00 | % | $ | 219,365 |
| 25.30 | % |
Territorial Bancorp Inc. |
| 9.00 | % | $ | 235,102 |
| 27.11 | % |
Tier 1 Risk-Based Capital (1) |
|
|
|
|
|
|
|
|
Territorial Savings Bank |
| 10.50 | % | $ | 219,365 |
| 25.30 | % |
Territorial Bancorp Inc. |
| 10.50 | % | $ | 235,102 |
| 27.11 | % |
Total Risk-Based Capital (1) |
|
|
|
|
|
|
|
|
Territorial Savings Bank |
| 12.50 | % | $ | 221,912 |
| 25.59 | % |
Territorial Bancorp Inc. |
| 12.50 | % | $ | 237,649 |
| 27.41 | % |
(1) |
| The required Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital and Total Risk-Based Capital ratios are based on the fully-phased in capital ratios in the Basel III capital regulations plus the 2.50% capital conservation |
Prompt Corrective Action provisions define specific capital categories based on an institution’s capital ratios. However, the regulators may impose higher minimum capital standards on individual institutions or may downgrade an institution from one capital category to a lower category because of safety and soundness concerns. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our Consolidated Financial Statements.
Prompt Corrective Action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions imposed become increasingly more severe as an institution’s capital category declines from “undercapitalized” to “critically undercapitalized.”
At March 31, 2024 and December 31, 2023, the Bank’s capital ratios exceeded the minimum capital thresholds for a “well-capitalized” institution. There are no conditions or events that have changed the institution’s category under the capital guidelines.
Depending on the amount of dividends to be paid, the Bank is required to either notify or make application to the Federal Reserve Bank before dividends are paid to the Company.
37 |
|
|
Legislation enacted in 2018 required the federal banking agencies, including the Federal Reserve Board, to establish a “community bank leverage ratio” between 8% to 10% of average total consolidated assets for qualifying institutions with assets of less than $10 billion. Institutions with capital meeting the specified requirements and electing to follow the alternative framework would be deemed to comply with the applicable regulatory capital requirements, including the risk based requirements. The federal regulators have currently adopted 9% as the applicable ratio. We have not elected to follow the alternative framework.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we enter into commitments to sell mortgage loans.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities, and agreements with respect to investments. Except for an increase of $63.0 million in certificates of deposit and a decrease of $19.7 million in loan commitments betweenBetween December 31, 20162023 and September 30, 2017,March 31, 2024, there have not been any material changes in our contractual obligations andor funding needs since December 31, 2016.needs.
43
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURESDISCLOSURES ABOUT MARKET RISK
General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Our Board of Directors has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity, and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.
Because we have historically operated as a traditional thrift institution, the significant majority of our assets consist of long-term, fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit accounts,inflows, cash balances at the FRB, loan and security repayments, advances from the FHLB and FRB, our capital, proceeds from securities sold under agreements to repurchase, and Federal Home Loan Bank advances.proceeds from loan and security sales. In addition, there is little demand for adjustable-rate mortgage loans in the Hawaii market area. This has resulted in our being particularly vulnerable to increases in interest rates, as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets. WeDuring the three months ended March 31, 2023, we obtained $105.0 million of three- to six-year FHLB advances and sold $20.3 million and $38.6 million$360,000 of fixed-rate mortgage loans for the nine months ended September 30, 2017 and 2016, respectively, to reduce our interest rate risk. During the three months ended March 31, 2024, we did not obtain any additional advances or sell any fixed-rate mortgage loans.
Our policies do not permit hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.
Economic Value of Equity. We use an interest rate sensitivity analysis that computes changes in the economic value of equity (EVE) of our cash flows from assets, liabilities, and off-balance sheet items in the event of a range of assumed changes in market interest rates. EVE represents the market value of portfolio equity and is equal to the present value of assets minus the present value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market-risk-sensitive instruments in the event of an instantaneous and sustained 100 to 400 basis point increase or a 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater than 100 basis points has not been prepared.
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The following table presents our internal calculations of the estimated changes in our EVE as of June 30, 2017December 31, 2023 (the latest date for which we have available information) that would result from the designated instantaneous changes in the interest rate yield curve.
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| EVE Ratio as a |
| EVE Ratio as a |
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Change in |
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| Increase |
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| Percent of |
| Percent of |
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Interest Rates |
| Estimated EVE |
| (Decrease) in |
| Percentage |
| Present Value |
| Present Value of |
| | ||
(bp) (1) |
| (2) |
| EVE |
| Change in EVE |
| of Assets (3)(4) |
| Assets (3)(4) |
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(Dollars in thousands) |
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+400 | | $ | 10,510 | | $ | (204,587) |
| (95.11) | % | 0.68 | % | (10.43) | % | |
+300 | | $ | 56,088 | | $ | (159,009) |
| (73.92) | % | 3.43 | % | (7.68) | % | |
+200 | | $ | 106,004 | | $ | (109,093) |
| (50.72) | % | 6.13 | % | (4.98) | % | |
+100 | | $ | 159,582 | | $ | (55,515) |
| (25.81) | % | 8.72 | % | (2.39) | % | |
0 | | $ | 215,097 | | $ | — |
| — | % | 11.11 | % | — | % | |
-100 | | $ | 266,870 | | $ | 51,773 | | 24.07 | % | 13.03 | % | 1.92 | % | |
-200 | | $ | 312,431 | | $ | 97,334 |
| 45.25 | % | 14.48 | % | 3.37 | % | |
-300 | | $ | 345,455 | | $ | 130,358 |
| 60.60 | % | 15.27 | % | 4.16 | % | |
-400 | | $ | 300,105 | | $ | 85,008 |
| 39.52 | % | 13.08 | % | 1.97 | % | |
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| EVE Ratio as a |
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Change in |
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| Percent of |
| Percent of |
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Interest Rates |
| Estimated EVE |
| (Decrease) in |
| Percentage |
| Present Value |
| Present Value of |
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(bp) (1) |
| (2) |
| EVE |
| Change in EVE |
| of Assets (3)(4) |
| Assets (3)(4) |
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(Dollars in thousands) |
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+400 |
| $ | 178,580 |
| $ | (70,231) |
| (28.23) | % | 11.47 | % | (1.56) | % |
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+300 |
| $ | 202,267 |
| $ | (46,544) |
| (18.71) | % | 12.32 | % | (0.71) | % |
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+200 |
| $ | 226,226 |
| $ | (22,585) |
| (9.08) | % | 13.05 | % | 0.02 | % |
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+100 |
| $ | 245,573 |
| $ | (3,238) |
| (1.30) | % | 13.45 | % | 0.42 | % |
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0 |
| $ | 248,811 |
| $ | — |
| — | % | 13.03 | % | — | % |
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-100 |
| $ | 219,529 |
| $ | (29,282) |
| (11.77) | % | 11.16 | % | (1.87) | % |
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(1) |
| Assumes an instantaneous uniform change in interest rates at all maturities. |
(2) |
| EVE is the difference between the present value of an institution’s assets and liabilities. |
(3) |
| Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets. |
(4) |
| EVE Ratio represents EVE divided by the present value of assets. |
Interest rates on Freddie Mac mortgage-backed securities have declinedincreased by eight21 basis points between June 30, 2017December 31, 2023 and September 30, 2017.March 31, 2024. The decreaseincrease in mortgage interest rates has not likely had a material effect on estimated EVE.decreased the value of our interest-earning assets.
Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in EVE. Modeling changes in EVE requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our EVE and net interest income and will differ from actual results.
ITEM 4.CONTROLS AND PROCEDURESPROCEDURES
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the SeniorExecutive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2017.March 31, 2024. Based on that evaluation, the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the SeniorExecutive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
The Company has determined thatDuring the new amendment on revenue recognition will notquarter ended March 31, 2024, there have a significant impact on key in-scope revenue sources. The Company will be adopting new controls and procedures, which would identify anybeen no changes in volumethe Company’s internal control over financial reporting that have materially affected, or new sources of in-scope revenue.
are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
ITEM 1.LEGAL PROCEEDINGSPROCEEDINGS
The Company and its subsidiaries are subject to various legal actions that are considered ordinary, routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets.Company. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.operations, and no claim for money damages exceeds ten percent of the Company’s consolidated assets.
There have been no material changes to the risk factors as discloseddescribed in our Annual Report on Form 10-K for the period ended December 31, 2023 filed with the Securities and Exchange Commission for the period ended December 31, 2016.Commission.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES ANDSECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Not applicable.
(b) Not applicable.
(c) Stock Repurchases. The following table sets forth information in connection withThere were no repurchases of our shares of common stock during the three months ended September 30, 2017:March 31, 2024.
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| Total Number of |
| Maximum Number of |
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| Shares Purchased as |
| Shares That May Yet |
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| Average Price |
| Part of Publicly |
| be Purchased Under |
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| Total Number of |
| Paid per |
| Announced Plans or |
| the Plans or |
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Period |
| Shares Purchased (1) |
| Share |
| Programs |
| Programs (2) |
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July 1, 2017 through July 31, 2017 |
| — |
| $ | — |
| — |
| 217,300 |
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August 1, 2017 through August 31, 2017 |
| 21,289 |
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| 30.13 |
| — |
| 217,300 |
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September 1, 2017 through September 30, 2017 |
| 10,737 |
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| 31.57 |
| — |
| 217,300 |
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Total |
| 32,026 |
| $ | 30.61 |
| — |
| 217,300 |
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ITEM 3.DEFAULTS UPON SENIOR SECURITIESSECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURESDISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATIONINFORMATION
None.
The exhibits required by Item 601 of Regulation S-K are included with this Quarterly Report on Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.below.
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INDEX TO EXHIBITS
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Exhibit | | |
| | Description |
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31.2 | | |
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32 | | |
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101 | | The following materials from Territorial Bancorp |
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101.INS | |
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101.SCH | |
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101.CAL | |
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101.DEF | |
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101.LAB | |
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101.PRE | |
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104 | | Cover Page Interactive Data File (formatted as inline XBRL document and contained in Exhibit 101) |
4741
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| TERRITORIAL BANCORP INC. |
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| (Registrant) |
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Date: | /s/ Allan S. Kitagawa |
| Allan S. Kitagawa |
| Chairman of the Board, President and |
| Chief Executive Officer |
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Date: | /s/ Melvin M. Miyamoto |
| Melvin M. Miyamoto |
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|
4842